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Artificial intelligence is no longer a futuristic fantasy but closer to a reality predicted to transform many industries. From chatbots to content creation, AI is making its presence felt in the digital space and beyond. Now, investors are trying to get in on the action. “We’re hugely excited about AI,” said Ben Rogoff, a portfolio manager at Polar Capital with 25 years of investing experience. “It’s still very early, but ChatGPT described as the iPhone moment for the artificial intelligence technology industry feels about right to us.” The tech fund manager also told CNBC’s Pro Talks that four large-cap stocks were driving some of the biggest and most tangible advancements in artificial intelligence. Microsoft Microsoft could be one of the top options for investors looking to invest in artificial intelligence, according to Rogoff, lead manager of Polar Capital Technology Trust plc. With $3.7 billion in assets, the fund trades on the London Stock Exchange under the ticker PCT, similar to an ETF. Rogoff told CNBC’s Pro Talks that Microsoft is in a strong position thanks to its investments in OpenAI, the company behind ChatGPT, and Github, a code-sharing platform for software developers. Microsoft has previously said it is integrating ChatGPT into its productivity software suite Office 365 to make the service more attractive to customers. The company’s “productivity and business processes” division, which includes Office 365 revenues, grew by 13% to $17 billion in its latest financial quarter — making it the second largest sales generator. The firm is also integrating ChatGPT into its search engine Bing. Rogoff also highlighted the company’s access to highly proprietary first-party datasets like LinkedIn, which is unavailable to others. Such datasets are vital in training artificial intelligence systems. While Microsoft, a software and services company, is PCT’s single largest stock position, the fund held 27% of its assets in semiconductors and related stocks, the most of any sector, as of Mar. 31. Nvidia In the chip sector, Nvidia and AMD were the fund’s fourth and fifth-largest positions. “Nvidia has become obviously a go-to stock this year. We’ve owned it for a very long time,” Rogoff told CNBC’s Steve Sedgwick. The AI chip maker’s stock has risen by more than 90% this year but comes following a 50% decline in 2022. Shares are currently trading 15% below their peak in November 2021. Nvidia’s rise this year is due to its dominant position in graphics processing units (GPUs) which has become particularly relevant in the post-ChatGPT-era, according to Rogoff. GPUs are critical for artificial intelligence because they are designed to handle the massive amounts of data and computations required for AI applications. NVDA 1Y line AMD AMD , another chipmaker, has done “exceptionally well” growing its share of the data center and server market in recent years, Rogoff said. The company, which displaced former industry leader Intel in recent years, makes some of the most powerful CPUs in the world. “We have hopes that the company will also be able to grab some share away from Nvidia with its latest chip,” added Rogoff, referring to AMD’s entrance into the AI market with the launch of the “Instinct” line of GPUs. The stock has risen by 60% over the past three years and is up 38% this year. The consensus price target of analysts compiled by FactSet points to nearly no upside from the current share price of $89.44. Alphabet When asked about Alphabet , the parent company of Google , previously considered a leader in artificial intelligence, Rogoff was divided and said the stock was in an “interesting spot.” The tech fund manager pointed to the company’s 90% market share in search, where it can deploy its own ChatGPT-like language model. But Rogoff also highlighted the possibility of losing market share if a competing service changed the user’s expectation of search results or upended Google’s advertising-led business model. “It can lose market share. It [would] also have to bear the burden of more expensive cost of servicing searches,” Rogoff said, noting that AI-powered search results cost multiple times the cost of the existing search service. On the other hand, Rogoff continued, “It may not lose market share, but it might have to suck up this additional cost of this AI-related costs as it as it has to deal with Bing.” Alphabet is the third largest holding in the Polar Capital Technology Trust fund. Rogoff also cautioned that early investments in technology also carry greater risk. “One of the key lessons I’ve learned over a long time as being a tech investor is that there is a very significant penalty to being too early as a thematic investor,” he added. To compensate for the risk, Rogoff suggests diversifying investments, even while targeting a single theme. It’s one of the reasons why his Polar Capital funds hold about 60 to 90 stocks each.
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