Generative AI will perhaps be the most dominant and consequential buzzword of not only 2023 but this decade. Generative AI is a form of artificial intelligence that enables computers to produce new and original content — text, photos, videos — based on human input.
The magnitude of investment opportunities unlocked by the advances in generative AI is huge. Major companies like Alphabet, Apple, Microsoft, Nvidia, among many others, are already drooling over the countless applications of generative AI.
A report by Rockefeller Insights quotes data from a Bloomberg report which says in 2022 alone investors poured a whopping $2.6 billion in 110 unique generative AI-focused startups in the US. Keep in mind that ChatGPT was launched near the end of 2022 and that’s when the term generative AI really started to take off on the mainstream internet. Generative AI is a key component of the global AI market which according to data quoted in the Rockefeller report is estimated to reach a massive $900 billion in value by 2026, growing at a CAGR of about 19% from the current levels.
Real-word studies quantifying the impact of generative AI have started to pour in. One such study was done by researchers at Stanford University and the Massachusetts Institute of Technology. In the study, about 5,000 customer service agents at a Fortune 500 company were separated in two groups, one with access to AI-trained generative AI tools and the other without any such tools. Results showed that the group with access to generative AI tools was 14% more productive than the other group.
“Huge Reckoning”
Like industrial revolution, the AI revolution will affect almost every facet of human civilization. Its effects are already visible. From education to labor markets, from food industry to entertainment, it seems like everyone will have to adapt, adjust, evolve or learn to thrive or at least survive in the AI age. In a new video series dubbed AI IRL, Bloomberg sheds light on how generative AI is affecting universities. Bloomberg quotes Andrea Jones-Rooy, a professor of data science at New York University, who thinks that education is going to have a “huge reckoning” because of this new technology.
“We get more emails about generative AI than we got in the early days of Covid when everything was shutting down.”
The professor also thinks universities will have reconsider their teaching methodologies and course design.
“We can’t keep telling ourselves that we’re here to teach them how to do code or have these tangible skills because you can teach yourself all of those things,’’ Andrea Jones-Rooy added.
Another area where generative AI and AI in general is and will make waves is the travel industry. Talking to Bloomberg, Choice Hotels CIO Brian Kirkland said that his company was already using AI before the buzzword generative AI surfaced. He said the company uses AI-powered systems to process and analyze data about trends, inventory management, customer satisfaction, best possible hotel deals, revenue management and more.
Image by Alexandra_Koch from Pixabay
Our Methodology
For this article, we scanned the holdings of The Generative AI ETF by Roundhill Investments (CHAT) and picked 10 stocks with the highest number of hedge fund investors as of the end of the first quarter of 2023. We gauged hedge fund using Insider Monkey’s database of 943 hedge funds.
Top 10 Generative Artificial Intelligence Companies to Invest In
10. International Business Machines Corp. (NYSE:IBM)
Number of Hedge Fund Holders: 49
At its annual Think Conference, International Business Machines Corp. (NYSE:IBM) recently revealed several AI offerings including those related to generative AI. International Business Machines Corp. (NYSE:IBM)’s products and services will allow developers to build and optimize their AI applications. International Business Machines Corp. (NYSE:IBM) Cloud Carbon Calculator, for example, is an “AI-informed” dashboard that enables customers to measure, track, manage and report carbon emissions generated through their cloud usage.
International Business Machines Corp. (NYSE:IBM) also revealed WatsonX, its AI-related platform that will offer various solutions in the related segment. There are three components of the platform. The Watsonx.ai studio component will be for generative AI and machine learning applications.
As of the end of the first quarter of 2023, 49 hedge funds tracked by Insider Monkey were long International Business Machines Corp. (NYSE:IBM).
9. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 91
While everyone is talking about NVIDIA Corporation (NASDAQ:NVDA) these days when it comes to chips for generative AI industry, Advanced Micro Devices, Inc. (NASDAQ:AMD) shouldn’t be ignored since the company has shown in the past how quickly it can catch-up when it comes to competing with giants like Intel Corporation (NASDAQ:INTC) and NVIDIA Corporation (NASDAQ:NVDA).
Advanced Micro Devices, Inc. (NASDAQ:AMD) is the fourth largest holding of the The Generative AI ETF by Roundhill Investments. Advanced Micro Devices, Inc. (NASDAQ:AMD) earlier this year revealed some Accelerated Processing Units that are used to power super computers. It’s also reported that Advanced Micro Devices, Inc. (NASDAQ:AMD)’s MI200 was used to train Microsoft Corporation (NASDAQ:MSFT)’s Azure for large-scale training data.
Advanced Micro Devices, Inc. (NASDAQ:AMD)’s CEO Lisa Su extensively talked about the company’s AI capabilities in AMD’s latest earnings call:
“We are in the very early stages of the AI computing era, and the rate of adoption and growth is faster than any other technology in recent history. And as the recent interest in generative AI highlights, bringing the benefits of large language models and other AI capabilities to cloud, edge and endpoints require significant increases in compute performance.
AMD is very well positioned to capitalize on this increased demand to compute based on our broad portfolio of high-performance and adaptive compute engines, the deep relationships we have established with customers across a diverse set of large markets, and our expanding software capabilities. We are very excited about our opportunity in AI. This is our #1 strategic priority, and we are engaging deeply across our customer set to bring joint solutions to the market, led by our upcoming instinct MI300 GPUs, Ryzen 7040 Series CPUs with Ryzen AI, Zynq UltraScale+ MPSoCs, LVO V70 data center inference accelerators and Versal AI adaptive data center and edge SoCs. I look forward to sharing more about our AI progress over the coming quarters as we broaden our portfolio and grow the strategic part of our business.”
8. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 99
Adobe Inc. (NASDAQ:ADBE) is taking the generative AI game to the next level by making the technology accessible to millions of users of its flagship product, Adobe Photoshop. Adobe Inc. (NASDAQ:ADBE) recently revealed Adobe Fill, a technology that allows users to edit photos using text-based input. Adobe Inc. (NASDAQ:ADBE) is also rolling out several AI capabilities in its famous Adobe Sensei platform.
A total of 99 hedge funds in Insider Monkey’s database of 943 funds reported owning stakes in Adobe Inc. (NASDAQ:ADBE) as of the end of the first quarter. The biggest stakeholder of Adobe Inc. (NASDAQ:ADBE) during this period was Ken Griffin’s Citadel Investment Group which had a $732 million stake in the company.
Polen Focus Growth Strategy made the following comment about Adobe Inc. (NASDAQ:ADBE) in its Q1 2023 investor letter:
“One area we are watching regarding Alphabet and Adobe Inc. (NASDAQ:ADBE) is AI systems and their capabilities, including generative AI. Interestingly, both Adobe and Alphabet could see benefits or threats from the emergence of generative AI and large language models (LLMs). Both companies already use generative AI to the benefit of their users in anticipating how content creators edit their work (Adobe) and in how search results are anticipated and generated (Google). At the same time, breakthrough technologies like AI can open the door to additional competition and/or impact a company’s profitability levels. We now see AI systems others are developing, including LLMs and generative AI offerings, that could be more competitive in the future. While we think it remains early days for ChatGPT and the capabilities of these types of LLMs and generative AI programs like DALL-E, the technology seems to be progressing at a fast rate and will at least require a strong response from incumbents.
As of now, we believe Alphabet and Adobe are leaders in their own right in these areas and have a clear path to improving their existing offerings with AI advancements, which would allow them to be net beneficiaries of AI. There are also significant barriers to building leading AI offerings in these areas. As a result, our position sizes in Adobe and Alphabet remain sizeable. For Adobe, the status of its pending $20 billion-plus Figma acquisition is also uncertain. There is a good chance, in our view, that it will be blocked by regulators, which would mean the future opportunity to expand its offerings to the developer community (beyond designers) may not occur.”
7. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 128
Alibaba Group Holding Limited (NYSE:BABA) is a major player in the Cloud computing industry. The company plans to use this position to expand its offerings in generative AI. In April Alibaba Group Holding Limited (NYSE:BABA) revealed plans to integrate its large language model, “Tongyi Qianwen”, across several of its products and services.
Alibaba Group Holding Limited (NYSE:BABA) accounts for about 2.69% of the total portfolio of The Generative AI ETF by Roundhill Investments.
As of the end of the first quarter of 2023, 128 hedge funds tracked by Insider Monkey reported owning stakes in Alibaba Group Holding Limited (NYSE:BABA). The biggest stakeholder of Alibaba Group Holding Limited (NYSE:BABA) was Panayotis Takis Sparaggis’s Alkeon Capital Management which owns a $472 million stake in the company.
L1 Long Short Fund made the following comment about Alibaba Group Holding Limited (NYSE:BABA) in its Q1 2023 investor letter:
“Alibaba Group Holding Limited (NYSE:BABA) (Long +16%) shares performed strongly based on favourable sentiment surrounding China’s re-opening and indications from Chinese authorities that the prolonged restructuring process of Alibaba/Ant Financial was finally drawing to a close. The company remains a high-quality business with leading positions in both eCommerce and Public Cloud. We exited our position in January at around US$116 per share with the shares having rallied more than 90% since their early November lows and our China re-opening catalyst having played out. We subsequently re-entered the position in March with the shares having pulled back and with the company announcing a new organisational and governance structure. Alibaba has announced plans to split into six major business groups – Cloud Intelligence, Taobao Tmall, Local Services, Global Digital, Cainiao Smart Logistics and Digital Media and Entertainment Group. Each of these groups will be managed independently (separate CEO and board) and have the flexibility to raise external capital and potentially pursue separate IPOs. We believe this announcement is a strong catalyst to unlock the inherent sum-of-the-parts valuation discount in the company.”
6. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 132
NVIDIA Corporation (NASDAQ:NVDA) is the biggest winner in the AI boom. NVIDIA Corporation (NASDAQ:NVDA)’s market cap reached close to $1 trillion recently after its shares jumped following a solid quarterly report and guidance, fueled by a huge demand for chips that are designed for AI applications. In an interview with CNBC, NVIDIA Corporation (NASDAQ:NVDA) CEO called generative AI a “flashpoint” for the company.
“The flashpoint was generative AI. We know that CPU scaling has slowed, we know that accelerated computing is the path forward, and then the killer app showed up.”
As of the end of the first quarter of 2023, 132 hedge funds reported owning stakes in NVIDIA Corporation (NASDAQ:NVDA). The biggest stakeholder of NVIDIA Corporation (NASDAQ:NVDA) during this period was Rajiv Jain’s GQG Partners which owns a $2.3 billion stake in the company.
Alger Spectra Fund made the following comment about NVIDIA Corporation (NASDAQ:NVDA) in its Q1 2023 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is a leading supplier of graphics processing units (GPUs) for a variety of end markets, such as gaming, PCs, data centers, virtual reality and high-performance computing. The company is leading in most secular growth categories in computing, and especially artificial intelligence and super-computing parallel processing techniques for solving complex computational problems. Simply put. Nvidia’s computational power is a critical enabler of Al and therefore critical to Al adoption, in our view. As such, we believe Nvidia is a long-term high unit volume growth opportunity. During the period, NVIDIA reported fiscal fourth-quarter results that met expectations, as the company navigated. through an inventory correction associated with the broad macroeconomic slowdown. Moreover, management gave fiscal year earnings guidance that was better than analyst estimates. noting strong year-over-year growth in gaming and data centers. Management’s constructive assessment of 2023 prospects. coupled with the rapid rollout and adoption of generative Al offerings, led to positive share price performance.”
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