No matter how well or poorly the stock market is performing, new and tenured investors will always flock to next-big-thing investments. And at the moment, no trend has captivated the attention of the investment community more than artificial intelligence (AI).
AI refers to the use of software and systems to handle tasks that would normally be overseen by humans. What makes AI special is its incorporation of machine learning, which allows software and systems to learn over time and become more efficient at their tasks.
Image source: Getty Images.
Big numbers usually entice investors -- and the numbers pretty much don't get any bigger than the growth estimates associated with AI. According to PwC's Global Artificial Intelligence Study, AI is on track to have a $15.7 trillion global impact by 2030. Approximately $6.6 trillion of this rise will derive from increased productivity, with the remainder coming from "consumption-side effects."
But one of the most common misconceptions about AI is that it's solely a boon for tech stocks. While there's no question that a tech giant like Nvidia is well positioned to benefit from AI euphoria, there's an entire world of companies outside the tech sector that are on the cutting edge of innovation thanks to AI. Here are three that are currently changing their respective industries.
Upstart Holdings
The first industry leader that's completely shaking things up, courtesy of artificial intelligence, is financial lending services provider Upstart Holdings (UPST 2.76%).
The loan approval process hasn't changed much in decades. In many instances, it requires applicants to fill out paperwork, which can then take an extensive amount of time to be reviewed by professionals at a lending institution.
Upstart is throwing this costly, time-consuming process out the window in favor of a loan-vetting solution that relies on AI and machine learning to rapidly offer an approval or denial on most loan applications.
According to the company, 84% of all loan applications submitted on its platform were fully automated and approved during the first quarter. This means substantial time saved for both the lending partner in question and the loan applicant. Between March 31, 2022, and March 31, 2023, the number of lending institutions partnered with Upstart practically doubled (from 50 to 99).
In addition to expediting the lending process, Upstart is making loans more equitable. Company data has shown that the average applicant approved on Upstart has a lower average credit score than an applicant approved using the traditional vetting process. However, the loan delinquency rate between Upstart's approvals and the traditional process have been similar.
This means applicants who were previously shut out of the lending market now have new opportunities with Upstart. It's also expanding the potential pool of clients for lending institutions without adversely impacting their credit-risk profile.
That said, Upstart isn't anywhere near finished updating its AI-driven platform. The company launched nearly two dozen new AI models during the first quarter, which are designed to improve accuracy to ensure more efficient borrowing and lending.
Furthermore, Upstart is only scratching the surface regarding its addressable market. The company has primarily focused on personal loan originations, which is a $171 billion market. There is, however, an opportunity to expand further into auto loans, as well as into home loans, which are, respectively, $775 billion and $2.7 trillion loan-origination markets.
Intuitive Surgical
A second industry-leading company outside the tech sector that's riding the artificial intelligence wave to completely change its industry is healthcare company Intuitive Surgical (ISRG 0.59%).
For more than two decades, Intuitive has been a leader in robotic-assisted surgical systems and solutions. It's best known for the development of its da Vinci surgical system, which allows surgeons to make more precise incisions, when compared to laparoscopic surgeries.
But this is also a company that's very much reliant on AI to hold its competitive advantages. As an example, Intuitive Surgical has developed Iris, an anatomical visualization tool that surgeons can use to prepare prior to a procedure. CT scans of patients are used to create segmented 3D models that surgeons can view or manipulate prior to heading into the operating room. It's effectively a game-planning tool for surgeons.
Intuitive Surgical also developed SureForm, a new type of stapling device that makes automatic adjustments to optimize the staple line of tissues. This device offers built-in intelligence designed to complement the existing skill of surgeons.
Perhaps the best thing about Intuitive Surgical is that its operating margin is designed to grow over time. Although the company generated the bulk of its revenue from selling da Vinci systems throughout the 2000s, it now brings in the lion's share of its sales from selling instruments with each procedure and servicing its systems. These are considerably higher-margin operating segments, which is what should allow Intuitive Surgical's earnings growth to outpace its double-digit sales growth for the foreseeable future.
I'd be remiss if I didn't also mention that Intuitive Surgical is light-years ahead of its competition with regard to system installations. Da Vinci systems aren't cheap (costing $500,000 to $2.5 million), and training surgeons is time consuming. In other words, it's highly unlikely that hospitals and surgical centers will be switching to a competing system anytime soon, if ever.
The Model 3 is Tesla's flagship electric sedan. Image source: Tesla.
Tesla
The third industry-leading AI stock outside the tech sector that's completely reshaping its industry is electric vehicle (EV) manufacturer Tesla (TSLA -1.11%).
Tesla wouldn't have EVs without the incorporation of AI. Tesla's vehicles use machine vision cameras and sensors to form 360-degree 3D layouts of their surroundings. These cameras and sensors work with Autopilot to handle partial autonomous driving situations where split-second decisions are needed to avoid other vehicles, pedestrians, and obstacles. Tesla is constantly gathering information that it believes will allow its full self-driving (FSD) technology to improve/evolve over time.
Tesla holds the distinction of being the first automaker in more than a half century to build itself from the ground up to mass production. After producing 1.37 million EVs in 2022, management has guided for approximately 1.8 million EVs this year. With the Austin, Texas, and Berlin, Germany, gigafactories coming online last year, Tesla shouldn't have any trouble handily increasing its year-over-year output.
Another competitive advantage Tesla brings to the table is its supercharger network. We're still arguably in the infancy of the infrastructure build-out needed to support the shift to consumer and enterprise EVs. Nevertheless, Tesla has deployed more than 45,000 superchargers worldwide. Even legacy automakers in Detroit are jumping at the chance to use Tesla's rapid-charging network.
But whereas Intuitive Surgical has a seemingly insurmountable moat in robotic-assisted surgical systems, Tesla's moat as an EV producer isn't quite as secure. Legacy automakers have deep pockets, and internal combustion engine vehicles should be highly profitable for years, if not decades, to come. Tesla's first-mover advantages could completely erode if it's not able to advance its FSD systems to higher levels of autonomy.
Although Tesla has been able to spearhead the transition to EVs and remains on the cutting edge of innovation within the automotive industry, competition within the EV space is fierce.
