Could your Isa profit from a chatbot?

Microsoft boss Satya Nadella says this is the most exciting development in his decade with the company.

Its Google counterpart, Sundar Pichai, says it will make people more productive than we ever imagined.

They are talking about artificial intelligence, or AI for short – the hottest trend in the world of technology right now.

The November launch of ChatGPT – an advanced chatbot that uses AI to perform a variety of tasks – has made headlines worldwide.

ChatGPT allows users to enter questions or instructions. Then, instead of just providing facts, the chatbot uses a huge and complex virtual “mind” to produce intelligent text in seconds.

The technology is capable of writing poems, solving homework problems, planning recipes and even thinking about ethical dilemmas.

The implications are huge: AI, once a side project for Silicon Valley tech entrepreneurs, has gone mainstream.

The steadily growing investment interest in AI has suddenly taken to a whole new level. After Microsoft announced at the end of January that ChatGPT would power its new search engine, the tech giant’s share price rose 9 percent in just three days.

That came after Microsoft revealed a multi-billion pound investment, reportedly $10bn (£8.3bn), in OpenAI, the company behind ChatGPT.

For Nick Williams, a tech investor at fund management company Polar Capital, this marks a turning point.

“ChatGPT has made AI much more accessible, hence the huge interest since its launch,” he says. “This kind of AI has the ability to transform a large number of processes in our economy.”

So how can investors benefit from this breakthrough technology?

Experts say you shouldn’t focus on looking for the next ChatGPT. Jason Hollands, of financial advisors Evelyn Partners, explains, “Many of the companies developing this technology are small businesses outside of the public markets.”

These research projects typically rely on private capital, often from West Coast investors. ChatGPT was originally developed as a non-profit research lab funded by Elon Musk and others.

“The broader investment opportunities will come in those companies that exploit the potential of AI,” adds Mr. Hollands.

He says major tech companies around the world are now in an AI arms race to integrate the technology into their businesses.

This frenzy has revived stock prices of an industry that had had a dismal run in 2022.

The tech-heavy Nasdaq-100 is now up nearly 15 percent this year (though it’s still down 25 percent from its all-time high).

Investor website Freetrade says the number of clients buying tech stocks is up 126 percent.

AI has also revived the competition between Microsoft and Alphabet (Google’s parent company) – the search engine giants. Both companies are quickly building advanced AI into their search engines.

So far, the markets appear to be in Microsoft’s favour. While Microsoft is up 13 percent year-to-date, Alphabet is up just 6 percent.

For investors who hold US index funds that track large US companies, the revival in the tech sector is a welcome boost.

Technology investor Stephen Yiu – manager of the popular Blue Whale Growth Fund – says there is another clear winner outside of Google and Microsoft: chipmakers.

A good example is California-based Nvidia, which makes the tiny chips that power everything from smartphones to drones and has a market capitalization of $539 billion (£445 billion).

“We believe that the ultimate winner in the AI ​​race will be Nvidia,” said Yiu. “While they may not be the face of the AI ​​revolution, they will provide the chips and processes that power it.”

Mr. Yiu urges investors to do some serious homework before choosing any stock or fund associated with AI as the industry is evolving so quickly.

“Investing in something you don’t understand isn’t an investment at all, and at worst it’s gambling,” he says.

Jason Hollands recommends that investors who would like to invest in AI developments use a specialized fund such as the L&G Artificial Intelligence ETF.

This passive fund tracks a US-based basket of companies that are actively developing and deploying AI.

While the tracker fund was hit by technology sell-offs last year – dropping 6% in one year – an investment of £10,000 at launch in 2019 will be worth around £14,200 today.

It has an ongoing annual fee of 0.48 percent, which is cheaper than many actively managed funds where shares are human-picked.

In addition to companies like Tesla, Meta and Amazon (up 80 percent, 43 percent and 16 percent so far this year), the index also includes smaller stocks that are purely focused on AI.

They include data analyst Alteryx, who uses AI to help employees make business decisions; MongoDB, which uses AI to create large databases that power online retailers; and cybersecurity company Rapid7, which can identify vulnerabilities in a company’s online security.

Crucially, this means investors aren’t betting all their money on one company that could rise or implode.

Other AI-focused funds available to UK investors include Allianz Global Artificial Intelligence and Polar Capital’s Automation & Artificial Intelligence Fund.

Allianz’s fund backs several chip makers, including California-based Broadcom, as well as Elon Musk’s Chinese retailer Alibaba and Tesla.

An investment of £10,000 five years ago would be worth around £19,000 today. That said, the fund is down 16 percent over the past year. The costs are 1.13 percent per year.

Polar Capital’s fund supports Microsoft and US healthcare provider UnitedHealth, which uses AI-powered chatbots to transfer calls faster and help doctors and patients collect information much faster.

Five years from now, a £10,000 investment in the fund would have paid back £16,800, even after falling 4 per cent over the past 12 months. It costs 0.9 percent per year.

moneymail@dailymail.co.uk