Technology stocks often get a lot of attention in a bull market because investor sentiment is high and people are searching for the next big idea that will bring huge gains. Some of that enthusiasm can, inevitably, lead to certain companies and tech trends being overhyped.
But while it's good to have a bit of skepticism when evaluating new investing ideas, investors shouldn't rule out one of the biggest technology transformations occurring right now: artificial intelligence (AI).
Sure, AI is a very hot topic in headlines. One of the reasons may be that AI will grow into an estimated $59.8 billion market less than 10 years from now. But aside from the market size, there are a few solid reasons why artificial intelligence stocks are more than smoke and mirrors.
AI is already commonplace among big tech companies
If you follow the tech sector closely, then you've likely heard of NVIDIA Corporation (NASDAQ:NVDA) more than a few times. One reason the company is so popular with investors right now is that it's become a huge AI player.
The company's graphics processing unit (GPU) chips are ideal for many AI applications, like sifting through photos and videos, and can process massive amounts of information very quickly. With its chips, NVIDIA has developed a semi-autonomous driving computer, an artificial intelligence platform for connected cities, and AI hardware that's helping to discover more effective cancer drugs.
NVIDIA still earns most of its top line from its gaming segment (making GPUs for computers), but its total addressable market in AI and machine learning is massive. The company estimates that its combined AI opportunities could be worth up to $39 billion over the next eight years.
But it's not just the big tech trends like driverless cars that prove AI is a solid investment; it's also the ways AI is already being used in common technologies right now. For example, every time you use Google to search for something online or open Google Maps to get home, you're tapping into machine learning software created by Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google.
Google's TensorFlow software is a machine learning tool that has been implemented in many of the company's apps for several years. It does things like learn what you mean when you're searching for something online and identify photos in the Google Photos app without having to be told what the pictures are.
And Google has made it very clear that AI is the company's new focus. Google CEO Sundar Pichai said earlier this year that the company is making "an important shift from a mobile first world to an AI first world."
So the next time someone tells you AI and machine learning is all hype, remind them that they've likely already used both technologies several times that day.
AI is about to take over your home
If the end of this year has been any indicator, AI is going to be huge within the home as well. Amazon's (NASDAQ:AMZN) Echo devices -- powered by the company's Alexa virtual assistant -- are already a huge hit among consumers, and that's giving lots of credence to AI becoming an integral part of our home technologies.
Consider that Amazon now has seven Alexa-powered devices that do everything from helping you order household items to restarting your dryer, calling you an Uber, and even offering up fashion advice (through both AI algorithms and a fashion specialist). Alexa has more than 15,000 skills, or apps, built by developers, and the company continually updates Alexa to make the AI assistant more powerful.
Amazon's AI-powered Alexa isn't the only virtual assistant vying for a spot in homes, though. Google has its own Google Home, Mini, and Home Max speakers that all come packed with its voice-controlled Google Assistant as well.
Both Google and Amazon are betting that these assistants in the home will be the basis for increasing communications between humans and AI software. Research firm Strategy Analytics said recently that, "Consumers need an intelligent way to interact with intelligent machines," and that, "touchscreens and menus are too limiting in terms of what AI can offer the consumer."
These AI assistants are also capable of creating substantial revenues. RBC Capital Markets estimates that Amazon's Echo devices could be worth $10 billion by 2020, through sales of the devices and as consumers order more products through Amazon using Alexa.
This is a long-term strategy
As with any other stock investment, investing in artificial intelligence needs to have a long-term focus. If the tech sector takes a nosedive a few months after you snatch up a few AI stocks, then you still hold the shares unless there's a clear reason for changing your investment thesis.
It's also worth remembering that the companies listed here are still building out their AI strategies, meaning their AI revenue and profits are likely to be smaller than the companies' other core segments right now. But patient investors will realize that AI investments aren't going away anytime soon, and now is a good time to start betting on an artificially intelligent future.