The investment opportunities related to artificial intelligence are as varied, plentiful, and promising as the life-changing applications that have been developed since the November 2022 introduction of the viral chatbot ChatGPT, according to Fidelity's Michael Kim.
"AI has drawn billions of dollars in investment as companies try to figure out how it can benefit their business," says Kim, co-manager of Fidelity® Enduring Opportunities Fund, explaining that much of the focus is on generative AI, a form of machine learning that produces text, images, sounds, or other content upon request.
Having been at the helm of the fund since its inception in 2019, Kim and his co-managers typically target companies with sustainable competitive advantages, attractive industry characteristics, and a strong management team.
Kim considers AI investment opportunities in three key categories: the companies developing the technology, the suppliers to those developers, and firms leveraging third-party technology and implementing it across their products and/or services.
One such example is Microsoft—the fund's largest holding as of August 31—which made a splash in January when it announced a partnership with OpenAI, the firm that developed ChatGPT, Kim highlights.
Microsoft will reportedly invest $10 billion in OpenAI over the next several years to collaborate and bring new tools to market across its product suite, according to Kim.
Meanwhile, Amazon.com, Alphabet, and Meta Platforms—other sizable holdings within the portfolio—have attracted investor interest for their long-running AI research and development programs, he says.
Among suppliers, Kim favors semiconductor firms, which produce the microchips that power AI machines, along with related semiconductor equipment companies.
For example, the fund has maintained outsized exposure to Taiwan Semiconductor Manufacturing and ASML Holding. Kim underscores that the latter operates in an important niche, producing crucial lithography equipment that many semiconductor manufacturers employ.
Kim concedes that, although there is a gold-rush mentality around AI now, some investors may view the frenzy as a short-term fad. "In fact, the long-term growth opportunities are huge," he contends.
As the market for AI further develops and matures in the coming years, Kim says he is aiming to position the fund to benefit from the inevitable shakeout that will reveal the real winners.
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