The ChatGPT boom and the recent double-digit jump in tech stocks, like Nvidia and AMD, in the last week of May is a classic case of the gold rush. Awed with the various things ChatGPT can do and the future of generative AI (artificial intelligence), investors are rushing to buy any stock that talks AI. All tech companies are pushing to build AI tools and applications to handle basic tasks and enhance productivity. While AI does present a trillion-dollar opportunity, where will most of this opportunity monetize?
AI investing 101
The AI rush reminds me of the 1848 gold rush when 300,000 people travelled to California in hopes of finding gold and making a fortune. While only some found their treasure, one person that made guaranteed money was Samuel Brannan. He sold pickaxes, shovels, and pans to aspiring miners.
The AI rush is similar to the gold rush. While many software companies are rushing to build their own generative AI to build fortunes, infrastructure companies have a definitive chance to make a win, and that is where you can monetize the AI frenzy.
How to choose the right AI stocks for your portfolio
The TSX doesn’t have many mid- and large-cap companies directly involved in coding AI algorithms. But it has some pickaxe companies that can benefit from the AI frenzy.
AI data centre infrastructure
The AI platform needs a high computing data centre to access information that it can use to generate the desired outcome. This has called for the need for graphics processing unit (GPU) powered data centres. Nvidia’s GPUs give unmatched accelerated computing needed for generative AI that can create its output. And crypto mining companies, like Hive Blockchain (TSX: HIVE) and Hut Mining (TSX: HUT), have GPU-powered data centres that they use for crypto mining. Their data centres use renewable energy and are located in cold regions to make them energy efficient.
Since crypto adoption takes time, they are exploring alternatives to optimize their data centers for high-computing tasks like AI and rendering. They are also exploring various applications of blockchain technology. This move towards diversifying applications presents an investment opportunity for unprecedented growth.
Given that crypto is still the core business, Hive and Hut 8 Mining stocks are highly volatile to crypto prices. But buying them at a dip has its benefits. Those who bought these stocks at the end of 2022, when the stock market bottomed out over concerns of a recession, can see a 100% jump in their stock price. So, even if crypto fever dies down, these stocks have AI fever and blockchain opportunities that could bring high growth to investors.
The communication infrastructure
For the AI revolution to monetize and bring a change in our daily lives, AI has to mobilize and operate at the edge. The future of AI is smart cities, AI-operated drones and autonomous cars. AI devices can’t operate in isolation. They need access to the internet where the data they trained on is stored. Even ChatGPT answers your question by skimming through the internet for information, which needs high-speed connectivity with minimum lag time.
The 5G communication infrastructure can set the stage for AI edge devices by offering the internet connectivity they seek. BCE (TSX: BCE) is leading the 5G frenzy, thanks to its $14 billion accelerated capital spending from 2020 to 2022. During this period, its free cash flow fell, as the company diverted the amount toward business. But now, it’s time for the telco to enjoy the returns from the 5G infrastructure. Unlike technology, where better tech can disrupt the first mover, the infrastructure game is won by those who come first and captures the market share.
While Hive and Hut can give you capital growth, BCE can give dividend growth in the coming decade of AI proliferation.
Investor takeaway
The AI opportunity is a reality. The earlier you jump into it, the better your chances of monetizing the future. Now is a good time to invest in the above two stocks through your Tax-Free Savings Account and forget it until your stocks zoom up in the AI rush.
