- Greg Fisher warns against investing in stocks just because they use the word “AI”.
- Investors need to understand how each company is using technology to optimize growth.
- In AI, a company’s greatest asset is the quantity and quality of data collected over time.
Everything related to artificial intelligence is gaining popularity in the market this year. Investors who still have growth ambitions are turning away from the overall sluggish stock market and betting on AI.
As of Thursday, the S&P 500 was up 8.08% year-to-date. But much of that rally has come from mega-cap tech stocks benefiting from AI.
Quent Capital founder and portfolio manager Greg Fisher warns against getting caught up in the hype without rigorous due diligence rather than just looking at a company’s balance sheet.
“I don’t know if you want to buy an old-fashioned bank that just recycles AI,” Fisher told Insider. “I don’t know if I want to run a company that sells hardcover books that use AI.”
He has been in the investment business for over 30 years and his firm has over $1 billion in assets under management. The firm specializes in global small-cap growth stocks, a category where new AI companies are emerging.
His main focus, he said, is to identify stocks that have the potential to grow 20% annually over five years. Bets are not placed on specific sectors or countries. Instead, he looks for innovative businesses that can expand profits and revenues relatively quickly.
These companies tend to have certain characteristics, such as being run by a founder or a highly entrepreneurial management team. They are taking risks to break new ground, he said, thus stealing market share from large, slow-moving old bureaucracies that are trying to innovate.
Because these companies are in the growth stage, their future is not always visible on traditional balance sheets. This is why his company focuses on research.
The due diligence done to find these promising high performers goes beyond traditional fundamentals. Metrics such as price/earnings ratios are not very predictive of future market returns. Spending on research and development and hiring more experienced engineers could eat away at some of the profits, but could strengthen the business, he said.
Much of Fisher’s additional research draws from academic literature and data analysis to understand the invisible success metrics.
For fast-growing small businesses, for example, the most powerful assets come home every night, he said. In other words, they are the people who work there. Other success metrics include culture, brand and ability to innovate.
There are also sector-specific factors. At the heart of AI innovation is the simple process of collecting and using data to predict future outcomes. In this case, a company’s greatest asset may be the quantity and quality of data it collects over time, he said.
Investing in AI
Investments in this innovative category must be balanced against identifying great companies that are solving real-world problems while effectively using AI to optimize their business. These companies are either developing AI in-house or acquiring startups that are developing AI, he said.
If two companies scored similarly on fundamentals and one had better technology, Fisher said he would choose the one with more innovation. It may be hard to tell the slight difference, but if you’re sponsoring H1B visas to attract engineers, or posting important positions on Glassdoor or LinkedIn, it’s because they’re actively It’s a sign that we’re working on,” he said.
You can find these gems in all areas of the economy if you know what you are looking for.
For example, he pointed out that one theme where AI can enhance business processes is in customer service technology.
Here are the companies Fisher is most excited about on the subject: sprinkler (CXM) is a customer service management software provider. The company is deploying conversational AI chatbots that can provide human-like interactions for agent assistance as well as self-service.
pegasystems (PEGA) is another software company that provides business process management as well as customer relationship software. It also integrates conversational AI and self-optimizing workflow solutions.
software provider sprout social (SPT), an all-in-one management tool for multiple social media networks, features AI capabilities currently in beta using proprietary machine learning (ML) and deep automation on top of OpenAI’s GPT to optimize workflows and posts Added functionality.
What excites him most about the field of healthcare is butterfly network (BFLY) is a company that provides relatively affordable portable ultrasound machines for various areas of the body, including the heart. Use data collected from past doctor’s visits to inform future diagnostic imaging.
“It’s not just one doctor’s opinion of what this is or what to do. We’re using the crowd and all that learning to inform doctors sooner about what’s going on.” Mr Fisher said.
Here are some healthcare companies that are also using AI: Nano X Imaging (NNOX) This is an AI-integrated digital x-ray that identifies asymptomatic and undetected chronic diseases to aid early diagnosis and preventive care. Fisher has yet to add the stock to his fund, but he’s been intrigued lately.
What excites him most about the restaurant and food sector is toast (TOST) is a cloud-based restaurant management software company that collects information about restaurant operations, including customers. Track behavior to help businesses proactively determine supplies needed. He said data points such as whether a particular customer is more likely to order an egg white omelet with veggies at 10 a.m. Tuesday will help determine how many eggs to order in a given week. . This eliminates wasted food and wasteful expenses, enabling efficient operations.
AI is also permeating pizza making. Domino’s Pizza (DPZ) uses technology to better understand its customers based on their location. For example, some zip codes may prefer pineapple as a topping. In some parts of the world, food chains have introduced camera images of finished pizzas to determine whether each pizza meets quality standards, according to Verdict Food Service. Fischer likes the brand as a whole, but has a version open to the European market, which trades under the ticker DOM on the London Stock Exchange, because the company has stronger fundamentals in the region. Because I am.
Bill Holdings (BILL) is similar to Quickbooks. Automate payments with AI to track and pay bills more efficiently. The data collected is used to understand cash flow and eliminate double bills and missed payments.
Pickle Robot is a private company and supplier of AI-enabled robotic automation systems that unload cargo from trucks. Unlike standard warehouse robots working on assembly lines, this robotic arm scans boxes and organizes them based on their contents. Rampack Holdings Co., Ltd. (PACK), a listed brand, has made a strategic investment in the company.
Another major player in the warehousing industry is symbolic (SYM) uses AI in its software to build and operate automated warehouse systems for companies in the United States and Canada. The company was small-cap when Fisher bought it, but is now mid-cap, he said.
Examples of large companies trying to get into AI by buying small companies include: Dear & Company (DE) is a manufacturer of agricultural machinery and other heavy equipment for forestry and lawn care. The brand acquired Blue River Technology, which develops self-driving machines that can use AI to distinguish between weeds and crops. This makes it possible to spray specific targets while leaving others at a distance. Maximize profits by working efficiently for long periods of time without damaging your crops.
