Artificial intelligence (AI) is considered a key piece of the Fourth Industrial Revolution. Many believe AI will one day be as disruptive as the steam engine, electricity, and computing.
In terms of its effect, AI will impact all sectors and unlock great wealth for investors. According to a McKinsey report, AI could unlock between US$1.4-2.6 trillion in value in marketing & sales alone.
One of the use cases for AI in marketing & sales would be to tailor individual promotional offers better or to price products more effectively. Besides improving marketing & sales, AI will also create possible countless new products and services such as autonomous driving vehicles.
Given its vast potential, the companies that succeed in AI could be great long-term investments. Among the promising Chinese companies with potential in AI are China's big three tech giants; Baidu Inc (BIDU -2.12%), Alibaba Group Holding Limited (BABA -2.45%), and Tencent Holdings Limited (TCEHY -2.04%).
What it takes to succeed in AI
Given that AI is a new technology still in its infancy, companies with strong cash flows and tens of billions of dollars to spend on R&D have a greater advantage over start-ups and companies with less resources.
Companies with more resources can hire more AI research talent and they can afford to invest in projects that might not pay off in the next quarter, or even next year. Given that AI is much more effective with mountains of data, companies that have access to the requisite data are also at a huge advantage over companies that don't.
With their scale, financial resources, and access to vast data streams, Tencent, Alibaba, and Baidu are arguably the best-positioned among Chinese technology companies to succeed in utilizing artificial intelligence.
Given that it is the largest search engine in the country that has the largest internet population, Baidu has access to a lot of data. And with billions in cash, cash equivalents, and short-term investments on its balance sheet, Baidu also has a lot of money to spend on R&D.
To that end, Baidu has invested billions in developing its open-source autonomous driving project, Apollo. As it stands currently, Baidu is the leader in the race among Chinese companies to develop autonomous driving systems in terms of miles driven.
The rewards can be huge as China's mainland autonomous vehicle market and mobility services could be as high as US$500 billion by the end of the next decade.
Like Baidu, Alibaba has billions of dollars and hundreds of millions of users generating data every day. The e-commerce giant also has ambitious goals for AI.
Besides improving ad click-through rates, Alibaba has used AI to create customer service chat bots, improve the recommendation of products to its shoppers, and power the brains of drones and robots for logistics purposes. In the future, Alibaba hopes to provide cloud-based AI to its customers and to help cities improve traffic congestion – just one small part of creating "Smart Cities."
Given how big the cloud market will be, Alibaba's potential success in AI could be a differentiating factor versus competitor Tencent and allow it to create immense financial value for shareholders.
Given that over one billion people use the super-app WeChat daily, Tencent has access to reams of data. Given its market cap of almost US$450 billion, the company also has a lot of financial resources.
Like Alibaba, Tencent has used AI to make its ads more effective, and to build chat bots. In terms of its future, Tencent has focused on AI's healthcare applications. The company has a lot of potential given that over 38,000 medical institutions have a WeChat account and around 60% of them accept appointment bookings online.
Tencent has also dedicated a lot of research in using AI to help the diagnosis of various cancers and to better manage healthcare records.
AI will create vast opportunities for companies with access to data and financial resources. Although Alibaba and Tencent arguably have more data and financial resources than Baidu, each company is focused on different niches and it's not a zero-sum game.
In that respect, each tech giant could potentially be great long-term investments for those of us interested in tapping into the future growth of AI.
A version of this article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en.