Investors familiar with artificial intelligence (AI) know that it’s a fast-growing theme, but equity must be sourced in credible fashion. An obvious avenue for that expansion is for purveyors of AI services and technologies to bolster efficiencies while driving down costs.
Good news for investors: That’s exactly what’s happening today in the AI arena, and as Wright’s Law continues taking hold, there are potential benefits for exchange traded funds, including the ARK Autonomous Technology & Robotics ETF (CBOE: ARKQ).
“Applying Wright’s Law to historical data from OpenAI and NVIDIA, we discovered that the combination of innovations in both hardware and software is driving the costs of AI training down by approximately 50% every nine months,” according to ARK Investment Management research. “Based on our forecasts of AI hardware and software spending, this rapid rate of decline is likely to continue for the next decade.”
Wright’s Law is used to forecast cost declines as a result of increasing efficiencies in cumulative output. An example of an ARKQ component benefiting from the applications of Wright’s Law is electric vehicle giant Tesla (NASDAQ:TSLA). As of November 12, that stock was ARKQ’s largest holding, according to issuer data.
As Wright’s Law takes shape in the Tesla production process, the EV manufacturer can potentially leave rivals behind — particularly those that are new to the EV arena — by not only realizing production efficiencies, but also emphasizing key factors such as dollars per range and vehicle performance as well.
Tesla is just one example of a well-known company benefiting from Wright’s Law, but the theory is applicable across the AI universe, and with companies in this industry boosting capabilities at a rapid rate, it’s clear that the benefits accrued to investors are tangible.
“High compute costs have been a barrier to investment in AI foundation models that should break down as training costs continue to decline,” adds ARK Invest. “As a result, we believe AI research is likely to proliferate as more organizations re-train large models with greater frequency. This important investment is likely to extend the frontier of possibilities associated with artificial intelligence.”
In terms of AI capabilities expansion and its relevance to ARKQ investors, the fund allocates over 64% of its combined weight to technology and industrial stocks — two of the sectors at the epicenter of AI advancements. Over 58% of the fund’s roster is allocated to companies engaged in autonomous vehicle and robotics concepts.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.