This article was updated on Jan. 9, 2018, and originally published on Nov. 25, 2016.
The words "artificial intelligence" likely conjure up visions of dystopian sci-fi worlds for many investors. Yet many tech companies have already developed advanced AI platforms -- indicating that the "future" isn't as far off as you might think.
You've likely already flirted with this technology with Siri or Echo, and you're probably aware that your personal information is constantly being analyzed in the cloud. But how do these pieces actually fit together, and which companies are well-poised to profit from smarter machines?
To figure that out, we should sort these top companies into three main categories: the advertisers, the SaaS players, and the chipmakers.
The online advertisers
Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google and Facebook (NASDAQ:FB) both use artificial intelligence to recognize images and analyze users' data to deliver better targeted ads. Google's AI takes a user's search history, location data, and other information to craft ads, and Facebook does the same with its users' social connections and interactions.
Google has acquired about a dozen AI start-ups over the past few years. These purchases include deep learning and neural network start-up DNNresearch, which enabled big upgrades to image search, and British AI firm DeepMind, which recently used its program to beat a human world champion at Go. It also acquired visual search start-up Moodstock, bot platform Api.ai, and Indian AI tool developer Halli Labs.
Facebook has been less aggressive on the acquisition front, but its FAIR (Facebook AI Research) unit develops many internal tools for image recognition, speech recognition, natural language processing, real-time translation, machine learning, and other algorithmic tasks. It also tested integrated chatbots in its stand-alone Messenger app in 2016, which enables companies to offer automated customer support services.
The SaaS players
AI and the cloud are joined at the hip, because AI platforms would be useless if they couldn't process a steady stream of cloud-based data. That's why cloud-based SaaS (software as a service) leaders Microsoft (NASDAQ:MSFT) and Salesforce (NYSE:CRM) are both investing heavily in AI.
Microsoft's SaaS products -- Office 365, Skype, and Dynamics CRM (customer relationship management) -- all feed data back to Azure, its IaaS (infrastructure as a service) and PaaS (platform as a service) ecosystem. To process all that data -- along with search queries from Bing, Cortana, and other apps -- Microsoft formed a massive new AI division called the AI and Research Group in late 2016. It also acquired AI companies like Netbreeze, Equivio, and Genee over the past few years.
Salesforce, the market leader in cloud-based CRM software, is also investing heavily in AI tools to present companies with better analytics to improve customer relationships.
It entered the market in 2015 with its acquisition of Tempo AI, and acquired MetaMind and open-source machine learning server PredictionIO the following year. It also introduced Einstein, which adds AI capabilities into its CRM products and lets developers create AI-powered apps which "get smarter with every interaction."
The hardware players
Smarter software demands smarter hardware. That's where NVIDIA (NASDAQ:NVDA) and Intel's (NASDAQ:INTC) Mobileye and Movidius come into play -- these chipmakers are developing next-gen chips that can help machines "see" better and process information faster.
NVIDIA is primarily known for its gaming GPUs, but its high-end Tesla GPUs are now widely used in data centers focused on machine learning. That's because CPUs paired with those high-end GPUs often process those tasks faster than standard data center CPUs like Intel's Xeon Phis. Several tech giants, including Facebook and IBM, have installed NVIDIA GPUs in their machine learning data centers.
NVIDIA also offers an automotive "supercomputer" called Drive PX. The platform, which is powered by its Tegra CPUs, helps automakers create driverless vehicles that can "see" and respond to obstacles. The second generation, Drive PX 2, is about 40 times faster and supports fully autonomous driving.
Mobileye is the market leader in ADAS (advanced driver assistance systems), which use a combination of cameras, radars, and computer vision chips to help vehicles avoid collisions. About 90% of the world's top automakers use Mobileye systems, putting the chipmaker in a solid position to expand into autonomous vehicles. The company plans to eventually launch a fully driverless platform with BMW.
The key takeaways
The AI market is a vast one, and plenty of other companies -- like Amazon, IBM, and Nuance -- are also nurturing the growth of intelligent machines. But for investors just getting acquainted with the AI market, examining how top online advertisers, cloud service providers, and hardware makers are investing in AI can give you a much clearer understanding of this complex market.