The rise of ChatGPT and the surge of attention it has brought to artificial intelligence (AI) technology is close to unprecedented. After its public launch in November 2022, ChatGPTs' monthly active user base surged to 100 million in January. According to analysts at UBS, no other consumer internet application has grown its audience so rapidly.
The large-language model increased awareness about the potential of AI across society and the investment world. And in its Big Ideas 2023 report, Ark Investment Management estimated that AI software had the potential to generate $14 trillion in revenue by 2030.
While many analysts now tout AI's potential, investors should also focus on the near-term monetization potential of these emerging technologies. And to improve their chances of profiting from this trend while also managing risk, investors would do well to favor companies that are making use of already-proven AI technologies.
Both The Trade Desk (TTD 1.67%) and Tesla (TSLA -1.11%) fit that description, and could be smart picks for investors keen on riding the AI wave.
1. The Trade Desk
Leading third-party demand-side advertising platform The Trade Desk has been a rare winner in the recently struggling digital advertising market. Thanks in part to the rising adoption of its cloud-based self-serve ad platform (which enables agencies to manage ad campaigns using real-time data) and its robust customer retention rate (at least 95% in every quarter in the past nine years), its shares are up by nearly 39% so far this year.
AI underpins The Trade Desk's exceptional data-driven adtech platform. Koa, its AI engine, analyzes large amounts of data from across the internet to uncover trends, patterns, and insights that ad buyers can use in their decisions about media formats, costs, personalization, targeting strategy, and fraud avoidance for their campaigns. Koa also helps advertisers place optimal real-time bids in auctions, which increases their chances of securing the right ad placements for their products.
The Trade Desk has also created the Unified ID 2.0 protocol, an alternative to privacy-invading third-party cookies for effective ad tracking and targeting. Its focus on customer privacy will ensure better reach and acceptance for ads that are relevant to their viewers.
Due to its focus on generating a high return on investment while ensuring transparency and objectivity for ad buyers, advertisers increasingly prefer to work with The Trade Desk instead of using walled options such as Alphabet and Meta Platforms. In 2022, The Trade Desk's revenue grew by 32% to $1.58 billion, much faster than the overall 10.8% growth rate for U.S. internet advertising. The company is profitable and has a robust balance sheet with $1.45 billion in cash and equivalents.
All in all, this AI-powered stock is well positioned to come out stronger when the ad market recovers.
2. Tesla
One of the most profitable electric vehicle (EV) manufacturers in the world, Tesla is famous for the technological edge of its cars and the manufacturing processes inside its gigafactories.
Investors, however, were disappointed with Tesla's first-quarter results -- the company's margins shrank in part due to its recent pricing strategy change. The company is prioritizing sales volume over higher profitability, and has aggressively reduced its EV prices globally, cutting them six times in the last year.
Despite this, last month, Ark Investment Management said that it expects Tesla's share price to reach $2,000 by 2027, implying a market capitalization of $6.3 trillion. While that target price may seem far-fetched, there is no denying the huge growth potential of its planned robotaxi business, assuming its AI-powered fully autonomous driving technology comes to fruition and is approved by governments for general use.
Tesla collects visual data from its network of on-road cars to generate an integrated 3D image that includes obstacles, lanes, roads, and traffic lights. Its AI system is being trained with a huge trove of real-time driving data to understand and anticipate the behaviors of cars, pedestrians, and cyclists. The AI algorithms are learning from the actions of millions of actual drivers in the world. Additionally, cars in Tesla's Full Self Driving (FSD) Beta program had clocked in 150 million cumulative miles as of October 2022.
Allied Market Research estimates the global robotaxi market to grow annually at a compound annual rate of 67.8% from $1 billion in 2023 to $38.6 billion in 2030. Tesla is well positioned to capture a significant share of this market.
Tesla's shares are down by nearly 49% year over year. This may prove to be an attractive entry opportunity for retail investors, considering that demand for the company's vehicles remained strong even in this complex economic environment. In the first quarter, Tesla delivered 422,000 Model 3 and Model Y EVs -- 108,000 more than it delivered in the prior-year period.
Considering the growth potential in the AI-powered electric vehicle industry, Tesla could prove to be a smart pick now for long-term investors.
