Artificial intelligence (AI) is the dominant theme across the stock market.
The biggest firms in the S&P 500 are mostly heavily involved in building the hardware and software that underpins AI technology.
The long-term promise of AI, though, can’t be restricted to exchanges of capital between the big tech companies. To justify the amounts that are being spent on AI data centres, AI is going to have to deliver real-world benefits.
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“As many markets, from the US to Taiwan and Korea, continue to focus heavily on the obvious AI supply chain exposure, we are tilting towards sectors that stand to benefit from the continued roll-out of AI in the real economy,” he added.
As AI’s impact broadens beyond tech, which are the real-world sectors most likely to be positively impacted by AI? And what is the best way for investors to gain exposure to them?
Healthcare and AI
Healthcare and biotech have long been touted as sectors that are perfectly positioned to benefit from AI.
They are data-intensive, but also labour-constrained; a combination that AI thrives upon.
At present, drug discovery is one of the sector’s key bottlenecks. It can take years for new drugs to go through the clinical trial process, and there is a high failure rate at every stage, but AI-discovered treatments have the potential to accelerate drug development timelines.
“Major healthcare companies are starting to report reductions in the time taken to carry out data processing, including regulatory filings and drug testing procedure documents, whilst healthcare providers are moving to better diagnostics and giving more joined-up care to patients,” said Flintoft.
Advances like these could be the tip of the iceberg as far as healthcare is concerned. Companies like Intuitive Surgical (NASDAQ:ISRG) are already bringing advances in robotics into surgical theatres, while Elon Musk’s brain interface start-up Neuralink offers the startling potential of computer-brain interfaces in the foreseeable future.
Investors looking for an investment trust to tap into AI-driven healthcare trends can select the Worldwide Healthcare Trust (LON:WWH) or Polar Capital Global Healthcare Trust (LON:PCGH), both of which trade at below the sector’s average discount and have generated share price returns of 133% and 176% respectively in the 10 years to 29 January (according to the Association of Investment Companies).
Utilities and energy
Another real-world theme set to be boosted by AI is energy demand. In some respects this is the other end of the value chain from healthcare; while AI companies are set to supply healthcare companies, they are reliant on increasing their energy consumption to do so.
“Utilities and the energy sector look set to benefit from rising energy demands globally as the building of AI datacentres continues apace,” said Flintoft. “Rising geopolitical risks and possible supply chain disruption does not look to be well appreciated in energy sector valuations, nor does the longevity and strategic importance of traditional oil and gas assets.”
Flintoft identified the iShares S&P 500 Energy Sector ETF (LON:IESU) and the iShares S&P 500 Utilities Sector ETF (LON:IUSU) as vehicles to access this theme.
You can read more on how to tap into AI energy stocks in our article.