The 3 Layer Approach: How to Find Stocks that Capitalize on the ChatGPT Revolution

As an investor, making informed investment decisions is crucial to achieving success. However, analysing a large amount of data and information can be expensive and time-consuming, even for those with relevant financial knowledge. 

Institutional investors have leveraged technologies for decades to gain an unfair advantage over retail investors. While retail investors often invest based on hearsay or a single piece of information, institutions trust data and invest billions of dollars in software and data engineers to make sense of it all. 

But all this has changed with the arrival of ChatGPT

Earlier, I wrote an article: How AI helped fuel the recovery of technology stocks. Now, in this article, we will dive deeper into how retail investors can leverage AI for stock research and the practical and simple way to implement it. 

Start with those being disrupted. 

To begin, let’s talk about the industries being disrupted by AI. My investment philosophy is to always avoid the losers before betting on the winners. The reason is simple – we have limited funds to invest. 

I know many Singapore investors hold shares in Telecom or Postal Industry as a “long-term investment”, only to fall into the “value trap” and suffer long-term losses. 

The “trap” occurs if your investment capital is stuck in a long-term loser because you won’t have the resources to invest in the winner when the opportunity arrives. Therefore, it is important to constantly review your stock portfolios and ensure your assumption of buying the stocks still holds.

Additional Reading: Long-Term Investing: 3 Reasons Why It Is a Bad Investment Strategy

I think ChatGPT has opened pandora’s box not only to Artificial Intelligence but a new industrial revolution. We are probably entering the Fourth Industrial Revolution. 

Source: Allianz Investor

So, who could potentially lose out in this AI revolution? 

Based on the latest Business Insider article, here are the 10 roles that AI is most likely to replace, including 

  • Tech jobs (Coders, computer programmers, software engineers, data analysts)
  • Media jobs (advertising, content creation, technical writing, journalism)
  • Legal industry jobs (paralegals, legal assistants)
  • Market research analysts
  • Teachers
  • Finance jobs 
  • Traders
  • Graphic designers
  • Accountants
  • Customer service agents

While this may seem daunting, it also presents a starting point for investors to ask themselves two very important questions: 

  1. Which sector will be disrupted and therefore its share prices will decline? 
  2. Which new sector will emerge and have a potential bull run?

Let me give you an example: in the past two decades, we’ve witnessed a shift from traditional cameras to smartphone cameras. So, what occurred?

  • The disrupted: Traditional camera and filmmaker businesses faced disruption.
  • The disruptor: The smartphone industry experienced a significant boom.
  • The follower: Chip makers and lens manufacturers capitalized on this shift, leading to significant financial gain.

Ride on the 3 layers of the AI industry chain

Applying this logic, we can see three layers of opportunities in the AI industry chain: upstream, midstream, and downstream. 

The upstream segment includes the research and development of AI technologies, as well as the production and distribution of hardware and software components used in AI applications. This includes companies that produce hardware components like chips and processors, as well as companies that develop and distribute software frameworks and tools for building AI applications. 

For example: 

  • Microsoft hit the jackpot with OpenAI and developed ChatGPT which gives them a huge advantage over other competitors. 
  • NVIDIA is a leading provider of graphics processing units (GPUs) used in AI applications, including deep learning and machine learning.
  • Google is also a major player in AI research and development, with a focus on developing advanced AI algorithms for various applications.

The midstream segment of the AI industry chain includes the integration and deployment of AI technologies into various applications, such as healthcare, finance, and manufacturing. This includes companies that provide AI-based solutions and services to businesses and organizations, as well as companies that use AI technologies to develop new products and services.

For example: 

  • IBM is a key provider of AI-powered solutions across various industries, including healthcare, finance, and manufacturing.
  • Amazon Web Services (AWS) offers a cloud computing platform that offers AI-focused services such as Amazon SageMaker and Amazon Rekognition.
  • Tesla uses AI technologies to power its self-driving electric vehicle and other advanced driver assistance systems.

The downstream segment of the AI industry chain includes the delivery of AI-powered products and services to end users. This includes companies that use AI technologies to enhance user experience and provide personalized recommendations and services, as well as companies that use AI to automate various business processes.

For example: 

  • Amazon uses AI technologies to power its recommendation engine and other features.
  • Netflix uses AI technologies to personalize recommendations for its users.
  • Salesforce uses AI technologies to automate sales and marketing processes and provide personalized customer experiences.

By understanding the different segments of the AI industry chain and the companies that operate in each segment, we can identify companies that can leverage AI technologies to achieve their goals and gain a competitive advantage in their respective industries.

But we need to understand that the AI industry chain is complex and multifaceted, with each segment playing a critical role and intertwined with each other. 

Luckily, there is a simple way for us to get started. 

How to use moomoo to research AI stocks 

Moomoo is one of my favourite online brokerage platforms that offers a wide range of products and advanced technology to help you trade. 

It offers some shortcuts for us to research AI stocks. Below is a step-by-step guide on moomoo SG app. If you do not have the app yet, download and register for a free account here.

The first thing you can do is to start a search for “chatgpt” and you will see a category called “ChatGPT Concept”. 

Source: moomoo

Click on it and you will see a list of stocks that fit into these criteria and the simulated performance of these stocks. You can imagine the performance represents a “ChatGPT-themed ETF” (although it doesn’t exist yet). 

Source: moomoo

You can see a list of “Constituent Stocks” and this is your starting point. The next thing you can do is zoom into each of them and understand how they are affected by AI.

For example, if you click on Microsoft stock and go to “Summary”, you will see a “Related Industry Chain”. This is powerful stuff. 

Source: moomoo

You can see that Microsoft’s business has crossed the entire industry stream: 

  • Upstream (Infrastructure Layer) –Computing Power and Data Services
  • Midstream (Algorithm Layer) – Algorithm Models such as ChatGPT
  • Downstream (Application Layer) – content production such as Office and other video and image applications. 

If you click on the chart, you can see a more detailed breakdown below. This will give you a solid idea of where the company stands if you believe in the future of AI power.

Source: moomoo

After this, you can start studying the company’s earnings and performance. I have written an article to explain how to do this in moomoo app using Tesla as an example

Additional Reading: How to Use moomoo For Stock Research

If you prefer video, below is a guide in my TikTok channel.

@firewithivan

#ChatGPT #invest #ai #stocks #moomoo

♬ original sound – FIRE Retirement – FIRE Retirement

Let me summarize…

By now you have seen the potential of the AI Revolution. You also learned how to use AI to find the stocks that will lead and follow the AI industry’s secular trend. 

Technology has transformed the investment landscape and provided retail investors like us with access to data and analysis that was previously only available to institutional investors. By leveraging technology providers such as moomoo, we can make more informed investment decisions and stay ahead of the curve. 

It’s important to remember that these tools merely help supplement your investment research and decision-making. They are not a replacement for personal analysis and judgment. 

If you do not have a Moomoo SG universal account yet, click here to sign up and receive an attractive welcome gift

Disclaimer: Stocks mentioned in the article are for education purposes. They are not investment advice. All views expressed in this article are the independent opinions of the author. Neither moomoo Singapore nor its affiliates shall be liable for the content of the information provided. This advertisement has not been reviewed by the Monetary Authority of Singapore.


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