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People today are creating more data than ever before. Emails, instant messages, credit card purchases ? even locations visited are collected and stored. For anyone to make sense of things at this scale, with individual datapoints in the billions of records, a new toolkit is required.

That toolkit is Artificial Intelligence (AI).

Now, humans have been inventing ground-breaking technologies for hundreds, if not thousands of years. Harnessing the power of fire is likely one of the earliest examples. In more modern history, it is very clear it’s technologies such as[1]:

Steam EnginesRailwaysInternal Combustion EnginesElectricityComputersThe Internet

Will AI have an impact that is on par or perhaps greater than any of these? With the passage of time, it is becoming clearer that AI will be important, but the nature of disruptive innovation is that breakthroughs and unexpected use cases can be developed that can create exponential increases in economic value.

AI has been discussed since 1955[2], so why hasn’t it become a “megatrend” sooner? For AI to be used in more mainstream applications, three distinct capabilities needed to evolve[3]:

Computer Storage or Memory: In the late 1950’s, the price for one megabyte of storage was nearly $10,000. Today, the price of that same amount of story is one one-thousandth of one cent. In other words, it has gone from inaccessible to so inexpensive that we don’t even think about taking our photos with high resolution and storing them in multiple places.Average Transistor Prices: Let’s assume that a transistor cost roughly $100 around 1970. In today’s terms, a transistor would cost roughly one ten-thousandth of one cent. To give this perspective, in 2019 iPhones Apple has released its A13 Bionic chip which had 8.9 billion transistors[4].Internet Connection Speeds: Transferring data over the internet used to be quite taxing, with one megabit taking substantial time to make its way to its destination in the 1980’s and 1990’s. Now, speed is measured in megabits per second, and people don’t think twice about downloading files multiple gigabytes in size, all within minutes.

The fact that we can now store, process and transfer very large amounts of data lead to AI’s potential to influence society on the scale of a megatrend.

Importance of the AI Value Chain

Unfortunately, even if one is excited about AI’s potential, it isn’t easy to turn around an make an investment directly in AI. We think that understanding the value chain of AI is helpful. Put simply:

There are companies that write software that can “learn”, meaning that it ultimately can perform functions that the initial programmers didn’t directly encode. Image recognition and natural language processing are two big examples of this. We call this group of companies “Engagers”.There are companies that design computer chips in ways that allow them to train AI algorithms more efficiently. AI without processing power is like a car without fuel. We call this group of companies “Enablers”.There are giant, widely recognised firms making massive investments in AI’s future capabilities. Importantly, these are usually widely diversified business doing more than AI-related work. We call this group of companies “Enhancers”.

None of these is “right” or “wrong”?we simply think it useful to know the details ahead of time and a strategy that is able to systematically identify and capture pure AI companies across the value chain, can be an efficient way to access this megatrend.

To learn more about the growth drivers of this industry and the structure of the AI value chain, please visit: eu/AITo access a list of relevant thematic products within the AJ Bell Youinvest platform, please visit: AJ Bell Youinvest - Thematics

This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.

[1] Source: Winton, Brett. “Disruptive Innovation: Why Now?” ARK Invest. 30 May 2019.

[2] Source: Childs, Martin. “John McCarthy: Computer Scientist Known as the Father of AI.” The Independent. 1 November 2011.

[3] Source: “Drastic Falls in Cost are Powering Another Computer Revolution.” Economist. 12 September 2019.

[4] Source: Hollister, Sean. “Apple Says its new A13 Bionic Chip Brings Hours of Extra Battery Life to New iPhones.” Circuit Breaker. 10 September 2019.

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