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What Artificial Intelligence Stock to Buy: The Best Stocks to Invest in Artificial Intelligence and Augmented Reality
This is one of those things — when I think of augmented reality, I instantly think of Pokémon GO. Obviously, it’s a whole lot bigger than that. It is. I was down visiting my mom and dad a couple of weeks ago. It was a bit challenging, trying to explain augmented reality to my dad. He’s a little bit older, maybe not quite as open minded, what have you.
But you’ve got to go back to the simplest form. So I thought, you’re watching a football game on TV, and they’ve got that yellow line there that shows you where the first down is. That’s a form of augmented reality. Ultimately, Pokémon GO is another great example. But AR, augmented reality, is that technology overlays digital or virtual content over the physical world that we encounter every day.
In most cases, that’s done by way of a headset or glasses, or very often a smartphone. Sometimes it’s not even that, it’s just you maybe watching TV or something. But in any regard, it’s just taking the physical world and augmenting it a little bit with additional technology. Seth, augmented reality. You’ve got some people out there saying it could be as big as a $70 billion industry by 2023.
You look at artificial intelligence, and the numbers get even gaudier, even bigger. How do you think about the investing opportunity when it comes to artificial intelligence? First, trying to figure out which store I can buy the best AI in. AI is a little hard to define because right now, it’s sort of everything and nothing. The definition constantly changes.
It used to be, you’d say it’s a device or a system that perceives its environment and takes actions to maximize its chances of achieving a goal. That sounds pretty smart, but that also probably describes Inky and Blinky in Pac Man, right? So, over time, this has shifted and became a little bit more difficult to achieve AI when you said “OK, it needs to perceive and correctly interpret the data and also learn from that data.”
So, you can think of something along the lines of, if you use Google Photos, if you go in there and type snake, if I type snake, I get like 50,000 photos in Google Photos. Bang, I will get a lot of pictures of snakes or videos of snakes. Google running algorithms on these things. These algorithms got better as they looked at more data. And now, they can pick out objects, people, and so on. AI gets even more convoluted after that.
Now, the current state of the art is, the system should learn from that data, and then use that learning to achieve specific goals through flexible adaptation — for instance, finding snakes or waterfalls in a photo is generally a little bit simpler. You can train the models by saying, “Here’s a bunch of data that has snakes or waterfalls.” Another way of teaching systems to do this, including self-driving cars, is you kind of let them figure out what things are on their own.
So, AI is a constantly-evolving set of technologies meant to, I think, in the best case scenario, take work away from people, let systems, which are really good at doing things quickly, do those things quickly, and also let them see relationships that people may not be able to even comprehend, even if they look at the data.
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Before we get to the individual stocks that folks can put on their watch list, let’s go a little bit broader. Jason, I’ll just start with you and augmented reality. Seth mentioned Google. Its parent company, Alphabet, is one of those companies that’s so big, with so much cash, they’re able to do a lot of different things. What are some of the companies investing in augmented reality?
It’s safe for me to assume that it’s the tech behemoths like Apple, Alphabet, etc. But I’m assuming there are a lot of other companies and a lot of other industries that are doing the same thing.
Yeah, I think that’s exactly right. One of the most enjoyable parts about digging into all of this and getting this service launched, was learning about all the different ways that AR is playing into our lives. Most people, I think, just think Pokémon Go, and that’s where it stops. Really, that’s just where it begins. You’re talking about markets from healthcare and engineering to entertainment and beyond. Retail, for example, even. We recently kicked out a neat report for our members in the AR service to talk about some of those companies in the retail space that are using augmented reality technology.
I think Wayfair is a great example of one where — and I’ve used this before. You’re looking at something on your phone, and you think, “Wow, that’s a neat couch. I’d like to get that. But, is it going to fit in my room? Does the color work?” Or whatnot. That was a big hurdle for Wayfair in the early days, selling big pieces of furniture or little pieces of furniture, and people don’t know if it’s actually going to work or not.
But you can now superimpose that stuff through your camera on your phone into the actual space in your room where you want to put it. Now, you’re talking about a big sales driver. It’s converting those sales in the retail space. They’re not the only retail company doing that, by any stretch. But then you look at healthcare, for example.
Healthcare is another space where there are just so many neat things happening. While the big technology companies — Alphabet, Microsoft, Apple, Facebook — they’re playing their roles, a lot of companies in the healthcare space are leveraging that technology in order to make healthcare better, whether it’s from planning for surgery, or maintaining hospital operations and diagnostics. Augmented reality technology is really taking a firm hold in a lot of different markets.
Seth, same thing for you. Artificial intelligence, obviously, Alphabet is investing heavily in that. Who are some of the other companies that maybe might surprise some people in terms of their investments into artificial intelligence?
People probably think of Google. Amazon. A company that would surprise people but it shouldn’t be surprising is Microsoft. Microsoft is a big leader in a lot of AI research and does some really interesting things. And then, of course, a lot of folks out there probably already know that AI spans a lot of different industries, a lot of different sectors. You have software companies working on software. The ones we just mentioned.
You also have hardware companies working on, for instance, chips and systems that can better handle the kinds of workloads that AI software demands. You think of something like Nvidia, which did very well adapting graphics processing technology toward doing AI research. There are others like Xilinx. There are other smaller companies out there that aren’t publicly traded yet working on getting hardware that can do basically a lot of smaller math, but much more quickly, is the way to look at it.
Nvidia, another company that’s using AR technology, too. Their automated driving platform.
Yes. Putting it all together. That’s one of the, I think, better places to look for returns over the long run here, companies that have an ecosystem like that, that are going to mash this stuff together. You can think of consumer products. Every company trying to sell anything will soon need to be contracting with someone to use AI or developing their own to better harvest insights from their web traffic, and from what other information they know about their potential customers, to help match them up with products that they’d like to buy.
Stitch Fix is a good example of a company that employs a lot of data scientists to try and predict trends. And then, interestingly, they don’t just lean on artificial intelligence, they pair that technology with human stylists, who then put together a box of items that, I guess it’s the fix that they send to customers. And hopefully, they like everything in the box, they buy it, and they buy more boxes going down the line.
Obviously, with all these companies investing in AR and AI, it’s not going to work for all of them. Certainly, the bigger the company, the more cash they have on the balance sheet, the better able they are to make a lot of bets, knowing that some of them aren’t going to work out. In terms of things to avoid for investors, it seems like — and Seth touched on this — companies that don’t necessarily have a lot of optionality with what they’re building, or what they’re trying to create, is that one of the mistakes that investors could fall prey to, is essentially investing in a company that really is just making one closed system bet, and if it doesn’t land, that thing’s going to zero?
Yeah, that would certainly be one of the things to be very aware of. You have on the one hand a number of the big tech behemoths out there that are really helping spearhead the way, whether it’s AR or AI or whatever other technology is coming down the pike here. Those are the companies that are really setting up the infrastructure that then a lot of these other companies will be able to utilize.
And part of the fun is finding a lot of those companies that are using it in different ways. But you’re right, some companies out there are going to make those bets and it’s not going to pan out. That’s really where it boils down to making sure that you’re allocating correctly and position-sizing correctly. We don’t, by any stretch of the imagination, look at AR and think you need to have your entire portfolio in AR. Far from it.
We’re thinking, depending on your situation in life, you’re growing your wealth or protecting your wealth, maybe you want to have 10% of your portfolio in AR. You could have 40% in AR if you want. There’s going to be some crossover there. But making sure that you position-size accordingly, allocate correctly. In the AR service, we have three different types of stocks. We have the stalwarts that are leading the way, companies that are really helping dictate the future, and then companies that are going to be highflyers in the future.
Maybe they don’t all pan out, but we make them all three work together so that you build a portfolio that’s nicely allocated so you mitigate that risk, but really maximize the opportunity.
It’s very similar over at AI, the AI service. Jason and I worked on allocation advice together since coming out at the same time, we think alike.
We agreed on a lot of stuff.
“Hey, how about if we agree on something, we make them similar?” In terms of making those one item bets or those one company bets, it’s simultaneously a bit of a frustration but a bit of a relief in AI, at least as it stands now, in that a lot of the more pure play, niche AI work that’s being done is still private companies, or maybe it’s even in laboratories or something.
So it’s hard to get yourself in trouble like you could maybe in a biotech by saying, “I think they’ve got the greatest solution to this,” and you plow all your money in it, and it doesn’t pan out and goes nowhere. Because most of them aren’t publicly traded. So that can save you from yourself. But it’s also a frustration because there are fewer opportunities to find that pure play that might just completely go crazy and make you ultra-rich.
Now, that said, the thing I like best about finding AI stocks is, as you said, some companies are going to do a great job and some are not. And when you look at companies that are already strong, and, for instance, have their own data moat that can really be supercharged by analysis through AI, then I think you can find a company that is already fairly well known. But if you know what their AI strategy is, you’re able to say, “Geez, I think they’re going to do even better than everybody expects.”
Let’s get to a couple of stocks folks can put on their watch list. Jason, I’ll start with you. We’ve gone through a lot of names here. Give us one more.
I’ll go with one that I just added to the watch list here in the service. The stock on my radar is Teradyne, ticker TER. Teradyne essentially focuses on automating to manufacturing’s most crucial elements in repetitive manual tasks in electronics testing. And I think the easiest way to put it, I like the way that company puts it on their website when they say it’s a good bet that every device you use has been touched and enhanced by Teradyne during its assembly or test.
These devices are reshaping markets where innovation is assumed and failure is not an option. I agree with that. Failure really isn’t an option. In technology today, people are going to buy the stuff that works, and if it doesn’t work, your days are done. Teradyne is the company that really is helping these companies spearhead that.
The market opportunity is big. It’s not really negotiable. These companies that are producing all of that technology, they need this type of testing equipment. And Teradyne is leading the way there. A couple of catalysts on the horizon for them. We hear a lot about 5G, of course, and the data that is going to be going through those 5G pipes. That’s going to be a core part of augmented reality’s future, is the establishment of that 5G network.
Teradyne is playing a big role in that. And then, they’re also making some modest investments in augmented reality in the enterprise space, which is really helping out manufacturing as well.
Alright, Seth, same question for you. What’s a stock in the AI space that folks can put on their watch list?
Another one, a recent idea that I wrote about in June was — you know this one, the ticker is TWLO. Twilio. Everybody out there, even people who haven’t heard of it, is probably using it in some way already. I guess the way I’d best explain it is, imagine that you are running an app. And it doesn’t matter really what your product is, you just need some kind of customer service. You want to be able to connect with your customers.
You can try to set up a system that does that, that has chat, e-mail, all those things, that verifies who people are. That is really difficult to do, and it’s a real pain, and it can be very expensive. Or, you can just have your developers start inserting a few lines of code, and Twilio provides all of that for you. They’re a huge player in this space already. They’ve got a big list.
Their clients include small companies like Uber, you’ve never heard of, or Lyft, Home Depot, eBay, and many, many others. They provide a whole suite of communications, and they try to centralize everything so that you can get seamless handoffs from text to even WhatsApp, across all of these borders. They’re probably one of the easiest ways to do this. And you don’t have to sign a big contract to get involved with this.
You can go à la carte, by the services that you request. It’s already a very strong company. The reason I liked it for AI is that they have started offering AI services that will allow the customers to use automated chat agents to reach their millions of customers. Again, you’re running this app, and you say, “Geez, we’re starting to get so many queries. We can barely handle them.
Some AI could really help us out by answering the top 20 questions for us.” Well, you can set that up if you’re using Twilio. You can set that up. I watched the demo where a guy did it. And I’m not a great coder. And I watched this guy write about eight lines of code and set this up in minutes. And it really was that easy. And then he used a phone and he called in and he got an answer just like that.
If it’s that simple, that makes the service much stickier, and it presents a much greater value proposition for prospective clients. I think, with the volume of interactions that they already handle, this is going to give them a really nice advantage going forward. I think the AI here is going to make a great business even better.
All right, we’ve got questions coming in from the audience. If you’re new to investing, or you’re just looking for a refresher, check out our comprehensive investing starter kit. It takes you through everything about how to think about money, how to build an emergency fund, how to buy your first stock, and a whole lot more, including five stock ideas. Let’s get to the questions.
Some specific questions about AI and AR. We’ll put those off to the side for just a moment because a bunch of people are asking about what’s going on with the market in general. There’s some macro stuff out there. We’ve got the tariffs, the inverted yield curve, the market sell-off, and it all boils down to the same question, which is essentially, how are you feeling about the market right now?
What are you doing with your money? Jason, I’ll start with you, and then Seth.
The inverted yield curve thing always just makes me think of that scene from Airplane, where everybody goes nuts on a plane and everything goes to hell in a handbasket. Don’t react that way, is the first point I’ll try to make. Try to keep everything in perspective. I was thinking about this earlier today. You and I have talked a lot about this recently on MarketFoolery.
It is a difficult time right now for investors. We’re seeing a lot of volatility. There’s no real clear direction. It does seem like everything kind of hinges on headlines day to day. It’s not all about just trying to buy things on the dip and time things. When you feel a little bit overwhelmed and a little bit concerned about not quite understanding what’s going on, No. 1, understand that this too shall pass. Everything lives its own life.
But the other thing I was thinking about was that in times like these, I really, really value knowing the fact that every paycheck, I’ve got a little piece of that paycheck going into my 401(k) and investing in an S&P 500 index fund. That’s happening no matter what the headline is today, no matter what it is next year.
It goes back to that, always be investing. A lot of times, the smartest action is inaction. If you can get yourself into a 401(k) or some type of a retirement plan where you can just dollar cost average in, set and forget it, that can be really powerful in times like these.
Save you from yourself.
Even we make stupid decisions, just merely most of the time.
We’re just not telling you all about it, that’s all.
It’s really easy to do, and it’s why most people lose to the market. Study after study shows this — people fly out of stocks, they fly out of their index funds when things start looking bad, and then they stay afraid for a long time and they don’t get back in until things are great again. Personally, I like a market like this.
I’d like to see it go down, even though that would make a big dent in my net worth, because I’ve always been an advocate of keeping plenty of dry powder, even when markets are going up. The other thing I do is, I own like 50 or more stocks. On a day like today, most of them are probably down. On a regular scary day, I’ve always got one doing well. Go with that one that’s not doing very well.
That’s really powerful.
We can speak it until we’re blue in the face, but once you live it, once you experience how valuable it is, then you understand fully, and you’ll never go back.
You’ll know you’ve gotten there when you see headlines and numbers like today and your stomach doesn’t hurt it all.
Sounds good! Thank you for all the questions!
Please, if you’re enjoying what we’re doing, give the video a thumbs up. It helps us out. We appreciate it. Emiliano asks, “It seems like IBM was an early mover in AI with Watson. Has IBM fallen behind?”
That is the saddest story in AI.
I have used some of Watson. You can try the demos. And I try to demo as much of the AI as is available for free and within my brain’s capacity to use. Watson does some amazing things. I think it’s still industry-leading AI in many ways. I think the problem is that it’s hooked onto IBM. They only do big deals, and they do very good things for their clients.
But if you wanted to invest in Watson, you have to buy IBM, and I’m not sure that Watson is enough to make that IBM investment move when there are so many challenges for the rest of IBM’s business. I suppose they know better than I do. But I’d be tempted to spin it off.
I was just thinking that. I wonder how often that conversation comes up.
The multiple you’d get on it be would be huge. Even the name doesn’t sound dated. It sounds pretty good.
Well, and wasn’t that part of the calculus when eBay spun off PayPal? That PayPal would be able to have a lot more optionality in terms of who they work with?
Certainly worked out better for one than the other.
Luis in Los Angeles asks, “Do you think or see marijuana companies eventually partnering up with AI companies?”
Wow, I love that idea!
How stoned can you get with just putting on a set of goggles?
It’d be interesting to see. Greg asking, “Will AR get into the pharmaceutical industry? And if so, how?” That’s an interesting one! Perhaps. There might be some way in the pharmaceutical industry that they’re using it now. I’m no chemist. But I wonder if perhaps there’s something. We talk a lot about engineering companies, and the way they’re using augmented reality to build a lot of things upfront through simulations before they make big investments into the actual products or concepts from that.
I wonder if there might be something there that pharmaceutical companies could use as well, or maybe it’s something where pharmaceutical companies try to become a little bit more vertical and understand the nature of the demographics that they’re serving, and augmented reality can certainly serve —
I wonder if there are AR therapies that would work out, too.
There certainly are therapies, things that they’re using in conjunction with companies like Google and Microsoft, through their hardware, definitely physical therapy, stuff like that, is part of it. When we get pharmaceuticals, I’m not really sure there. But yeah, I think that’s certainly a possibility.
Paolo asked a question. “Do you think that the hospitality and tourism industries could benefit significantly from AI and AR?” I just want to point out before, Seth, you take the first crack at answering his question — I love the fact that the folks who are watching recognize all of the applications. I think it’s natural to think of AI and AR just in one particular way.
But you have people asking questions about the pharmaceutical industry, the tourism industry, and so much more. It really speaks to how big this opportunity is.
In terms of AI, as I mentioned earlier, anyone selling any sort of good or service who’s got a decent amount of data on the customers that come to them is going to need some ever-increasing accuracy and predictive analytics. That’s where AI will and should be able to help folks going forward. There’s probably plenty of room for hotel chains to use AI, to do better on making offerings to people who are likely to come and visit, if a price is here, or if there’s a certain event going on.
Those are all pretty interesting ideas. I know that in terms of AI, just nuts and bolts, I think it’s Airbnb that was overwhelmed by trying to list the amenities that might be in any of the properties. And they used some computer vision AI to pick out items from photographs that the flat owners have uploaded to say, OK, there’s going to be a toaster in this one, because we can tell that it’s a toaster; we know that the refrigerator is this big, and it has an ice maker; and so on. I thought, wow, that hadn’t occurred to me.
It seems so simple and obvious. But think of the time saved for both people listing properties as well as Airbnb if a machine can be listing out the amenities for you just by trolling through the pictures.
Yeah. I think hospitality and tourism is a no-brainer. We’re seeing companies like Priceline and Expedia, for example, making investments there and figuring out ways to make the travel experience more enjoyable by incorporating augmented reality into whatever travel experience you may be running into. I’ll talk also, just real quickly, there’s a book out there written by Helen Papagiannis, and it’s called Augmented Human.
And the nice part about this book, it talks about all of these different ways that augmented reality is playing into our lives. Seth was talking earlier about, a lot of the great stuff is coming from these small companies that aren’t public. We can’t really invest in them. But that’s what makes them so great. They’re able to be nimble and try things like that. You can go to cities around the world — museums, for example, are incorporating augmented reality into their experiences, whether that’s through audio or through visual.
They’re bringing augmented reality into these experiences to enhance them and make them better. And that’s just one example of many of the steps that are taking place in the interim. We’ll see a lot of that in the years to come.
I actually can’t wait until we’ve got the goggles in the museums like the British Museum. As a former art history major and aficionado, all of those big white statues you see, they were covered with paint. The Roman ones especially were gaudier than you ever could have imagined. Some museums have replicas made and painted.
But imagine how awesome it would be if you could just grab those goggles, look at the marble, which is now all white, all the paint’s gone, throw them on, and it’s painted as it originally was, or according to two or three different hypotheses. That kind of thing would be really powerful.
Check out Artivive— I mean, talk about little companies that aren’t really on anyone’s radar. Artivive is a Vienna-based startup. Not Vienna, Virginia. The Vienna over in Austria.
The real Vienna.
Yeah, the real Vienna.
This is a company that’s using AR tools for artists to be able to create museums and expand their galleries. You can leverage that concept, that artistic ability, and bring it to a wider audience. And these companies are all over the place. You’ve just got to search around and find them. They’re there.
Seth, you raised something that goes nicely to David’s question, which is, “What about AR headset manufacturers? Are any of those investable?” Someone’s got to make the goggles.
There definitely are some. You look at the usual suspects. Microsoft and its HoloLens is a big player in that space. Google, working on Google Lens, trying to bring that more into the mainstream as well. Apple, we’ve seen some back and forth on what exactly they’re doing on the headset front. And then Facebook, of course, with Oculus. I think those are the four main players in that space.
There is another company I can point to called Upskill. Upskill is not investable. It’s a small private company. But they are working on delivering software for headsets in the industrials space and manufacturing. You see a lot of companies out there that are working on that headset/ software combo for manufacturing.
A lot of those are the smaller companies that, we can’t invest in them yet, but I suspect we’ll see some of them plucked up by some of those bigger companies in the near future.
Last question before we wrap up, Seth — do you guys have any private AI companies on your wish list? Anything that you are dying to see come to the public markets?
Jason has to go first. I have to find the name of mine. It always slips my mind.
The one that I always went back to, the one that really captured my attention, because I like to paint a little bit, so Artivive was one that I just thought was, wow. And then I saw that Apple was incorporating AR into this art exhibit that they’ve rolled out around the world and you can check out online via the Apple Store.
You can actually go in there and check this stuff out in the Apple Store, with what they’re doing. Artivive is one that’s just always captured my attention. And then, I had the good fortune to actually interview the CEO of Upskill, Brian Ballard. I’m a big believer in what they’re doing on the industrials side.
I think there’s a real place for augmented reality, and its benefits and manufacturing. So, those are two smaller companies that I’ll definitely be keeping an eye on. Full disclosure, Upskill is a company that our Motley Fool Ventures wing of this business — it’s a separate business, of course — they have an investment in Upskill. The team there saw something, too.
Seth, you’re out of time.
I know, and I’m totally blanking on the name of this company. That’s really embarrassing right now. I feel like Bill Mann and the famous reserves comment. I’ll describe it anyway. It’s England-based. The two founders actually both bought chip companies that were purchased by other larger chip companies in the past. The revelation here was, “You know what?
When we’re doing these AI workloads, we’re calculating a lot of numbers really quickly. We’re calculating them out, say this is our decimal point, to way out here. We don’t really need to do that. We need to do more math, but it can be fuzzier math. It doesn’t matter so much.” So, they redesigned chips entirely. They can put more processing power on them at lower power, and therefore they can do a lot more work in the same set of cycles. God, I wish I could remember their name! They’re still private.
You know what, it was a great question, and now you have a little bit of homework. Seth gave you some clues.
We’ll put it in the comments once I dig it out of my notebook.
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