The AI revolution is here – should you buy AI stocks?

Artificial Intelligence (AI) is on everybody’s lips in 2023. Everyone is excited about AI at the moment, and the excitement is visible in the stock market.

Just have a look at the worldwide Google search for “Artificial Intelligence.” The closer it gets to 100, the more popular the term is among Google users – the chart below speaks for itself.

Companies with exposure to the sector have seen their stock prices rallying hard this year. So the big question right now is if this is just a bubble or the start of a much longer bullish trend in a relatively new industry.

Technology stocks outperformed the overall stock market

Technology stocks have outperformed the overall stock market in the past decade. A quick comparison between the STOXX Global 1800 Technology Index and the STOXX Global 1800 Index performances and annual returns since 2015 reveals a sharp difference.

In 2023 alone, the STOXX Global 1800 Technology Index has advanced more than 48%. And judging by investors’ appetite for the stock market, the technology sector’s expansion is likely to continue.

What is the industry’s potential?

Here is where it becomes interesting. How can anyone estimate the future potential of the AI industry?

An easy math calculation reveals some huge numbers. For instance, AI should replace knowledge workers.

It is estimated that over 1 billion such workers exist worldwide. If the AI industry replaces only 15% of these workers, a conservative number for the annual addressable market is around $460 billion. That is, without any possible (and probable) productivity gains.

Another clue about the huge interest in the industry’s potential came yesterday. Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) reported their quarterly earnings yesterday, and the number of times the AI came up during the earnings calls was 145 times.

In 2023 alone, the STOXX Global 1800 Technology Index has advanced more than 48%. And judging by investors’ appetite for the stock market, the technology sector’s expansion is likely to continue.

What is the industry’s potential?

Here is where it becomes interesting. How can anyone estimate the future potential of the AI industry?

An easy math calculation reveals some huge numbers. For instance, AI should replace knowledge workers.

It is estimated that over 1 billion such workers exist worldwide. If the AI industry replaces only 15% of these workers, a conservative number for the annual addressable market is around $460 billion. That is, without any possible (and probable) productivity gains.

Another clue about the huge interest in the industry’s potential came yesterday. Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) reported their quarterly earnings yesterday, and the number of times the AI came up during the earnings calls was 145 times.

What companies lead in the AI field?

Besides Google and Microsoft, there are numerous companies active in the AI world in different areas, such as AI applications, semiconductors, cloud computing, and big data.

The areas may further be divided into segments, such as imaging laboratories and communication and collaboration content sites (AI applications), data storage media (big data), managed hosting services (cloud computing), or programmable logic device semiconductors (semiconductors).

NVIDIA, Digital Realty Trust, Oracle, and Advanced Micro Devices, are just a few names representative of the AI sector.