The Opportunities – and Limits – of Artificial Intelligence

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The term “artificial intelligence” (AI) sounds a little bit like something you might dismiss, doesn’t it? Why favor something artificial over the real thing?

Dismissing AI would be a big mistake, especially when it comes to investing. At the same time, there are still some things we humans are better at – thank goodness – so you have to be aware of the limitations, too.

AI is a growing topic on Wall Street, and it is one of my top NexGen mega-trends for the next decade and beyond. Research firm Tractica expects global revenue to increase more than 4,000% in less than 10 years, from $1.4 billion in 2016 to $59.8 billion by 2025. You can see why the upside potential is so huge, and it’s definitely not too early to start making money on it. In fact, I’ve already recommended some ways to profit in my investing services, and you can bet I’m on the hunt for other new and exciting opportunities.

More Than You Might Think

What comes to mind when you hear about AI? For most people, it’s robots and science-fiction kinds of things. That’s all part of it, but it goes even beyond that.

Artificial intelligence uses computers to complete tasks that would normally require human input, and machine learning gives the technology the ability to learn on its own – without having to be explicitly programmed. This is done through algorithms that analyze large amounts of data and find often-overlooked patterns. Computers can identify even the smallest of patterns in just seconds, whereas it might take a human years to do the same thing, if at all. Traditional AI is limited because it can only go as far as the original programming, but with machine learning the computer is constantly adapting.

Beyond machine learning we have deep learning, which is similar in that machines become smarter. This technology uses an artificial neural network in which each neuron has a yes or no answer. Layering millions of these allows the computer to complete and predict very complicated matters with much more processing power than that of a human. We can see this in action in a computer detecting a disease before a doctor would even have time to read the test results.

That’s just one of the advancements made possible with AI, from the cool to the game changing, like computers beating chess champions or self-driving vehicles racing to get on the market first. AI technology is also becoming more a part of our everyday lives. If you shop on Amazon (AMZN) like me, you’ve probably noticed those personalized recommendations that pop up. They are amazingly good at predicting what I like and what I need. I have to admit, I often find myself clicking “buy now.”

Here’s another example: AI makes it possible for the Uber app to predict rider demand and implement surge pricing in order to decrease the demand and increase the supply of drivers – and make more money for the company in the process. (There’s speculation Uber may try to go public next year.)

One Thing AI Won’t Do

With all of the great potential in AI and robotics, I don’t expect the world to be overtaken by machines. Save that for bad science-fiction horror movies. The future is more about humans building and programming machines to make our lives easier and better.

I can already tell you one area where robots won’t cut it. It’s an area that’s near and dear to my heart – and yours, too, if you’re reading this. I’m talking about investing. The idea of a robot making decisions about your money is absolutely crazy, and if you need any proof, we just got it in the recent market sell-off.

There are some hedge funds out there that incorporate AI and machine learning into their decision making. Well, those funds posted their worst month ever in February. JPMorgan (JPM) went so far as to say they were part of the reason the market corrected.

I am not saying that AI will not be an integral part of investing in the future, but not to the extent you can imagine. One problem is that the AI investing systems tend to all pile into the same stocks, which is great during a bull market, but when things go the opposite direction it can have dire effects on the market and your portfolio. The majority of the AI-run investment platforms have yet to experience a recession, and whenever that occurs it will expose the flaws of computers and investing.

The Better Way to Make Money

I’m all about next-generation trends, products and profits, but when it comes to my money and the money of my clients, I’m staying old fashioned and making the investing decisions myself. We’re already making money in an exchange-traded fund (ETF) with exposure to AI, and I’m just waiting for the right moment to add a stock or two to multiply our profits.

I recently shared two companies high on my watch list with my NexGen Profit Multiplier readers. One is a leader in digital knowledge management that helps its clients control online data in near real time. Its knowledge engine platform lets a business manage its own cloud data and sync it to over 100 services, including major apps like Siri and Google. The stock flies under the radar of most investors, but when it does get on the radar, look out.

The second company is a potential play on machine learning. It provides self-service data analytics software, and revenues are growing nicely – up 55% in the fourth quarter. The stock is up over 45% just in 2018, and while some may say we’ve already missed out, I completely disagree. There is still a lot of upside to capture as this young company grows, and a near-term pullback could be a great opportunity to buy in ahead of that.


Article printed from InvestorPlace Media, https://investorplace.com/moneywire/2018/03/the-opportunities-and-limits-of-artificial-intelligence/.

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