Artificial intelligence thought leaders believe the technology might be dangerous if left unchecked. AI is a generational opportunity for investors.
Elon Musk and Steve Wozniak, the co-founder of Apple (AAPL), sounded the alarm last week about the perils of AI experiments. Their Future of Life petition is nearing 20,000 signatures.
Aggressive investors should buy Ark Genomic Revolution (ARKG). Let me explain.
Prior to 2012 academics scoffed about the usefulness of AI research. It seemed ludicrous that AI would ever reach artificial general intelligence, the stage where machines learn and understand as well as humans and other animals. AGI, and its inherent risks to society and humanity was the stuff of science fiction writers. Then AlexNet in 2012 changed everything.
AlexNet is a convolutional neural network architecture designed by Alex Krizhevsky, a Ph.D. student under Geoffrey Hinton. The graphics-based CNN was a 2012 in the ImageNet Large Scale Visual Recognition Challenge. Krizhevsky described the software as a variant of earlier designs by Yann LeCun, but enhanced by a software and hardware platform developed by Nvidia (NVDA). AlexNet blew away the competition, scoring 10.8% better than the next best system. It also established AI as software 2.0.
In the decade that followed AlexNet there has been exponential progress.
Jensen Huang, chief executive at Nvidia told CNBC last week that AlexNet was a ‘big bang” moment for AI. He directed every resource at the company to take advantage. This bet paid off in 2017 when he personally delivered an AI supercomputer to OpenAI, a small nonprofit company dedicated to exploring the possibilities of generative software.
And that is the rub. AI generates new software, autonomously.
OpenAI is creating a lot of buzz currently because its ChatGPT is seriously impressive. However, data scientists are not really certain how its models work, or if they can be controlled. Left unchecked with the current trajectory, these models might scale to AGI. They could automate away jobs, or worse, outsmart humans so much so that we would become obsolete.
Don’t laugh, OpenAI executives believe current models can scale to AGI. And Geoff Hinton, now at Alphabet (GOOGL) can’t rule out the possibility, either. Meta Platforms (META) AI leader Yann Lecun is less optimistic, according to his personal Twitter feed.
AGI is the problem that Musk, Wozniak and the other Future of Life petitioners want to impede.
The fact this matter is now being seriously debated is an indication that AI is moving beyond the hype cycle. These events create tremendous wealth as investors price in disruption. Valuations become absurd. Generational price bubbles are set to expand.
At a share price of $29.72, the Ark Genomic Revolution exchange traded fund is about where it was in June 2019, when the stock was first listed. In between, the volatile ETF traded in February 2021 to $114 as the first part of its hype cycle began.
Catherine Wood, the chief investment officer at Ark Investments, came to national prominence in 2018 when she predicted Tesla (TSLA) shares would rally to a market capitalization of $672 billion. Two years later she was vindicated as shares rose tenfold. Her next big project was Ark Genomic.
The ETF holds 60 stocks poised to take advantage of the new AI paradigm shift.
For 50 years biologists were stumped by the near random shapes proteins took as they folded. These 3D shapes define function. DeepMind, an Alphabet AI subsidiary found a solution in 2021 to the folding problem.
Scientists know how to make proteins in the lab. DeepMind’s research makes it possible to now easily determine what shapes and functions those proteins will assume, speeding the drug discovery process. It is a really big deal that has been lost in the larger story of the 2022 tech wreck, when valuations contracted.
The new AI super-cycle will change this dynamic.
Ark Genomic shares are not for everyone. They carry high risk. Many of the businesses in the fund are at the beginning of their revenue cycles.
Shares have been building a base near $26 since June 2022. The stock could rally all the way back to $114 during the next 18 months, a gain of 284% from current levels.
Aggressive investors should add longer-term positions but still set a $24.50 stop.