Editor’s note: “Is This the Best Way to Invest in the AI Gold Rush?” was previously published in February 2023. It has since been updated to include the most relevant information available.
With everyone hyper-focused on artificial intelligence () these days, investors are set on finding the best AI stocks to buy now.
It seems Wall Street thinks the answer is Big Tech.
Over the past few months, as the AI hype wave has swept across the market, Big Tech stocks have caught a bid. Microsoft (MSFT) is up 4%. Apple (AAPL) rose 14%. Nvidia (NVDA) has popped 59%, and Tesla (TSLA) has soared 67%.
Of course, this begs the question: Are Big Tech stocks the best way to invest in the AI “Gold Rush”?
Put simply, no.
Big tech stocks are a way to play the AI Gold Rush. We believe companies like Microsoft and Apple will integrate sophisticated AI throughout their ecosystem of products. And chipmakers like Nvidia will see a huge uptick in demand for its GPUs to power next-gen AI systems.
However, those are multi-hundred-billion-dollar, even trillion-dollar companies. Even if their AI applications create trillion-dollar empires – which is totally possible but also a best-case outcome – their stocks would only rise, say, 100%, versus 1000% for a smaller company.
Why? Because of the “small firm effect.”
Why Enormous Returns Are Possible
According to this theory, which was posited by Gene Fama and Kenneth French, small-cap stocks have higher growth potential than their large-cap counterparts because they have a greater amount of growth opportunities. What’s more, they’re often subject to more volatility in their businesses, and the mere correction of an oversight can lead to an outsized appreciation in price. Remember Facebook’s IPO? It was a disaster… until Facebook learned how to monetize mobile ads and turned that weakness into a strength. Lastly, because early stage stock prices tend to be smaller, they also tend to grow much faster (it’s easier to double from $2 than it is from $200).
Sure, a 100% return is nothing to laugh at – my subscribers just bagged a near-100% winner in 3 months, and we’re very proud of that.
But the AI Revolution represents one of those once-in-a-lifetime investment opportunities where 1,000% and even 10,000% returns are entirely possible.
With opportunities that big available, we shouldn’t settle for 100% winners. We should think bigger.
And that’s why I think the best way to invest in the AI Revolution today is through early stage self-driving cars.
AI Drives AVs
AI is a technological tool, much like the internet is.
As technological tools, neither AI or the internet are all that valuable by themselves. Rather, in order to extract value from them – as is true with any tool – you have to apply it.
Apple applied the internet to the phone, created the iPhone, and built a $2.4 trillion empire.
Amazon (AMZN) applied the internet to shopping, created e-commerce, and built a $1.1 trillion empire.
When looking to invest in AI, we cannot just invest in AI. We have to invest in companies that are innovatively applying AI to a huge industry, reshaping the way humans do things.
AVs Behind the Scenes
Autonomous vehicles are nothing more than AI applied to the world of transportation.
Here’s how self-driving tech works, in a nutshell…
A car is outfitted with sensors and cameras. Those sensors and cameras collect data about the car’s surroundings. That data is processed by an AI system, which it uses to make real-time decisions. And those decisions ultimately determine whether the car accelerates, brakes, changes lanes, turns, etc.
AI is the “engine” of the self-driving car.
Therefore, it is no coincidence that at the same time we are seeing all this hype about AI and ChatGPT, we are finally starting to see self-driving cars on the road.
Next time you fly into Phoenix Sky Harbor International Airport and order a ride-hailing service, you may be picked up in a fully autonomous vehicle with no driver in the car – at all. That’s because Alphabet’s (GOOG, GOOGL) autonomous ride-hailing unit, Waymo, just opened its business in Phoenix to the general public.
It marks the first time in U.S. history that anyone can order an autonomous vehicle on a ride-hailing trip.
This isn’t an anomaly. It’s the start of a new trend.
Waymo has also launched fully autonomous ride-hailing services in San Francisco. And Uber (UBER) said it will start its own robo-taxi services in Las Vegas this year.
And it’s not just ride-hailing, either.
Mercedes-Benz (MBGAF) said that later this year, it will launch a new lineup of vehicles with L3 autonomous driving capability. And it just signed a multi-billion-dollar deal with lidar firm Luminar (LAZR) to get the job done.
For context, Tesla cars only have L2 autonomous driving capability. And the gap between the two is wide. L2 requires constant human monitoring. But L3 allows drivers to safely watch movies, read, text, work on a laptop, and more while the car is in self-driving mode.
It’s a huge deal.
Self-Driving Is Taking Off
And yet again, they aren’t alone. Volvo (VLVLY) said it is launching a vehicle – the EX90 – with potential L3 driverless capability in early 2024. BMW (BMWYY) plans to launch one in 2024, and Volkswagen (VWAGY) plans to launch a full suite of them in 2025.
Meanwhile, you may have noticed all the recent news reports about self-driving delivery cars. You may have even had your stuff delivered by one recently. They’re everywhere these days!
In Houston, Domino’s (DPZ) is using small autonomous vehicles to deliver pizzas. Uber Eats is using its own autonomous vehicles to deliver food in Houston and Mountain View. Meanwhile, 7-Eleven is also using autonomous vehicles to deliver food orders in Silicon Valley.
Folks. The self-driving cars have finally arrived. They are here!
It is no coincidence that their arrival is happening at the same time that AI is making massive advancements.
AI is the engine of the self-driving car. As AI is becoming infinitely smarter and better, self-driving cars are becoming infinitely more capable, too.
This multi-trillion-dollar revolution in transportation is happening right now.
The Final Word on Investing in AI
Everyone wants to invest in AI these days – and rightfully so. I think one of the best ways to do so is through self-driving car stocks.
I could tell you all day long why that’s the case. But showing is often more powerful than telling.
AI really burst onto the scene in 2023. Year-to-date, self-driving car stocks have soared anywhere from 20% to 80%, with the average return in the basket of self-driving car stocks we track being about 42%.
By comparison, the mighty Dow Jones Industrial Average is down 1.5% this year.
Let me repeat that.
As AI has become the focus of Wall Street investors, self-driving car stocks have jumped about 40% all while the mighty Dow is down.
Believe me when I say that self-driving car stocks are one of the best ways to play the AI Revolution.
And this is all happening very rapidly.
Blink, and you may miss the opportunity.
That’s why, tomorrow afternoon at 4 p.m. Eastern, I will be hosting our first-ever AI Super Summit event.
And I’ll discuss everything you need to know about the “Age of AI,” including the best AI stocks to buy right now.
This event could be your chance to capitalize on this coming once-in-a-decade technological revolution.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.