Artificial intelligence (AI) has been with us for some time now. It took a great leap forward with the launch of OpenAI’s generative AI platform ChatGPT in November 2022, ushering in a new era of wide consumer mass adoption of AI by households. A plethora of AI startups have sprouted in 2023, and AI stocks popped. However, we could be in the early days. Investing in AI growth stocks could revolutionize one’s portfolio over the next decade.
Companies globally are striving to protect and enhance their earnings margins following a bout of inflation and accelerated (yet expensive) de-globalization post COVID-19. Productivity improvements from AI adoption could deliver the goods. Companies in the AI value chain could earn more revenue, book growing profits, and attract higher stock prices – revolutionizing investor portfolios.
How big could the AI market be?
In a June 2023 report, research and advisory firm McKinsey estimates that generative AI could add between US$2.6 trillion and US$4.4 trillion (CAD$3.4 trillion to CAD$5.8 trillion) annually to the global economy, or up to 2.8 times Canada’s GDP for 2022.
The disruptive effects of generative AI could be huge, especially as it looks to transform various economic roles, and boost productivity and performance across several functions in engineering, software development, banking, marketing, arts, and life sciences.
Generative AI could potentially transform any, and every industry, at some stage – given time and entrepreneurial drives. Of course, some professions will be hit much more than others. The recent standoffs between content creators and movie producers could be early indications of structural changes to commerce influenced by generative AI. Physical professions like construction could feel safe for now, until someone comes along with an army of cheap AI-controlled small drones with arms that may lay bricks and inspect concrete on commercial construction projects.
Interestingly, McKinsey revealed that its estimate would potentially double if the effect of embedding generative AI on current software packages to increase tasks and optimize productivity is considered. In other words, investors could capture the huge AI upside in more ways than direct investments in AI-chip manufacturers like Nvidia. I’m looking at a Canadian tech stock Open Text (TSX: OTEX) right now.
Open Text stock entangled in an AI revolution
Canadian enterprise information management software giant Open Text is a $15 billion tech stock undergoing a significant transformation as it integrates old software products with artificial intelligence in 2023. The company’s $5.8 billion acquisition of Micro Focus in January this year marks a key product life-cycle even for Open Text’s existing software suites to customers.
Open Text is embedding Micro Focus’ AI platform IDOL into its existing products with potentially massive productivity gains for users. IDOL extends Open Text’s data analysis capabilities to all content types, enabling AI data search and analytics on more than 1,000 data formats. Enhanced product suite capabilities should, at least, insulate Open Text’s customer portfolio from losses to aggressive AI startups, and expand the company’s total addressable market.
Adding artificial intelligence to existing products has revolutionized Open Text’s product portfolio, and rejuvenated the company’s go-to-market prowess as it fends off new competition. AI could have the same impact on investor portfolios as companies claim their share of a new $5.8 trillion global market.
Investors are smiling already. Open Text stock has gained 37.5% in value so far this year.
