Investors Returns Are Now All About AI

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Is market rewarding AI positioning?

Tech Times recently published an article on Apple. It appears that the article was trying to make a case for its audience that Apple is indeed pursuing artificial intelligence, that a lot of AI is included in the Apple products, and that Apple considers AI to be such an integrated part of its overall development strategy that it really doesn’t have to brag about it. It almost felt like that Apple was downplaying the need to view AI as something above and beyond what it is already doing.

Is it possible that Apple has been less successful in marketing or a little late in educating investors about its vision for artificial intelligence and this article was meant to inform investors about Apple’s AI strategy? Or perhaps is it possible that large firms are really thinking about artificial intelligence as a “feature or function enabler” and not a revolution on its own?

The problem with approaching AI as “feature and function” vs. the primary strategy is that IBM has now defined AI as the new frontier with its cognitive computing branding. And while it is easy to downplay that positioning, history shows that others will have to follow suit.

While the tech sector generally relies upon the army of analysts (both financial and technical) to explain its business strategy to investors – the financial statements and annual reports should provide some indication of where a company is going. It can also serve to communicate strategy by hype-proofing it (given that the filing is made to the regulatory authorities) and hence can provide some tangible analysis. While the use of annual reports to describe strategy is not the topic of this post, I wanted to do a quick analysis of the use of the artificial intelligence related terms in the annual reports of some of the large companies and to view the YTD performance of their stock.

So I conducted a small experiment. I took the 2015 annual reports of Apple, IBM, Microsoft, Alphabet, Amazon, Facebook, and Nvidia1 and searched for three terms (machine learning, deep learning, and artificial intelligence). In doing simple word search analysis in their annual reports I discovered that Nvidia, Facebook, and IBM were the largest users of the terms (if we take the word cognitive to signify IBM’s AI strategy, the word was used 54 times in IBM’s annual report). Then I calculated the 2016 stock returns on these companies (July 4th 2016 to August 24th 2016) and placed them in the next column.

It may be a coincidence, but the stock returns of the three firms that used AI most in their annual reports (Nvidia, IBM, and Facebook) are the highest in the group of the firms that I analyzed. A simple regression shows the R-square to be 0.9515.

 Machine LearningDeep LearningArtificial IntelligenceTotalStock Return
Apple00003.85%
IBM103420.04%
Microsoft20028.33%
Alphabet00003.72%
Facebook003321.20%
Amazon000019.19%
Nvidia11611891.62

The question is: Is market rewarding companies for focusing on AI – but not just as a “function and features” addition but instead to base the entire firm’s strategy on that? And if that is the case, how important is it for companies to develop comprehensive AI centric strategy – not just for their products but also for their positioning and branding.

 

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