What is the history of AI?

The term "artificial intelligence" was coined by John McCarthy in 1956 at the Dartmouth Summer Research Project on AI. The project's goal was to brainstorm about AI's potential and how to achieve it. The event brought together brilliant mathematicians and scientists from around the world and is considered the catalyst for establishing AI as a field of study.

The emergence of AI in the 1960s was marked by the creation of the first AI-enabled robot and paved the way for major advancements like expert systems and the Internet. The 21st century saw AI integration into everyday life through devices like the iPhone and its voice assistant, Siri, which further fueled research into virtual assistants. This progress culminated in the development of sophisticated humanoid robots like Sophia, capable of human-like interaction and learning.

OpenAI, the explosive startup that helped spark interest in AI with their large language model ChatGPT, was founded in December 2015. On July 22, 2019, OpenAI signed a partnership agreement with Microsoft (NASDAQ:MSFT) worth US$1 billion, cementing the company’s status as a prominent figure in the tech industry, and Microsoft has made further investments since then, including one reportedly worth US$10 billion that was signed in 2023.

After releasing multiple iterations of its GPT language model internally or with limited access beginning in 2018, in November 2022, OpenAI publicly released ChatGPT, a chatbot application built on top of its GPT-3.5 model. The chatbot gained one million users in just five days, and ChatGPT became the fastest-growing consumer app in history.

AI development accelerated rapidly from that point. Taiwan Semiconductor Manufacturing Corporation (TSMC) (NYSE:TSM), the largest manufacturer of computer chips, released its Q4 2022 results on January 12, 2023, which revealed an astonishing 78 percent growth in net profit compared to the previous quarter thanks to an increase in chip orders as TSMC’s clients — including Apple (NASDAQ:AAPL), Sony (NYSE:SONY) and Intel (NASDAQ:INTC) — raced to capitalize on the AI boom.

In early 2023, one company emerged as a leader in AI hardware: Nvidia (NASDAQ:NVDA). Nvidia designs high-performance graphics processing units (GPUs) and other specialized chips powering the majority of AI workloads today. The company’s products were in high demand as AI took off, and on May 24, 2023, the company reported a 19 percent increase in quarterly revenue driven by orders of its GPUs. Nvidia’s share value grew by over 230 percent in 2023. Its chips are still highly sought after, and the company is now TSMC's largest and most valuable customer.

The excitement and interest from users — and investors — have prompted tech companies eager to capitalize on the groundbreaking technology to pour billions of dollars into AI research and development (R&D).

OpenAI’s GPT-4o was released on May 13, 2024, and featured improved personalized responsiveness and contextual awareness. “This is incredibly important because we are looking at the future of interaction between ourselves and the machines," said Chief Technology Officer Mira Murati during the product release at the company’s Spring Update.

Its newest model, OpenAI o1, is designed to spend more time “reasoning” before it responds, allowing it to solve harder, more complex problems in math, coding and science. A preview of the first version was released on September 12.

What are the market trends for AI in 2024?

AI and generative AI — technology with the "brainpower" to produce content — have already taken the world by storm, and the industry appears set to continue growing. The global AI market was valued at US$136.6 billion in 2022 and is expected to grow at a compound annual growth rate of 17.3 percent between 2023 and 2030, according to a report by Grand View Research.

AI software has revolutionized data-driven industries, particularly the finance, healthcare, transportation, manufacturing and education sectors. In the medical field, AI has been particularly transformative, accelerating drug discovery, refining diagnostic accuracy and advancing research by enabling the analysis of large datasets with speed and precision. The market for AI in healthcare is expected to grow at a compound annual growth rate of 47.6 percent between 2023 and 2028, according to research conducted by Markets and Markets.

AI software has also boosted major tech companies to new levels of success and turned lesser-known enterprises into household names. Microsoft’s collaboration with OpenAI exemplifies this trend, as integrating OpenAI’s technology into AI products like Microsoft 365 Copilot and the Azure cloud platform has likely contributed to increased revenue for cloud services.

Microsoft's product releases had become somewhat stagnant in the years leading up to their involvement with ChatGPT. While the company continued to iterate on existing products and services like Windows and Office, there was a lack of truly groundbreaking or innovative releases that captured widespread attention and excitement the way its AI product offerings have.

To understand the AI landscape, it's helpful to break down the key players into three distinct segments: the software designers crafting the AI models and providing essential infrastructure, the chip designers creating the specialized hardware and the chip manufacturers bringing these designs to life.

Google’s (NASDAQ:GOOGL) LLM Gemini made its debut on December 6, 2023, and led to the company’s stock price increasing by 5.34 percent. Google has since expanded access and rolled out new versions and updates to Gemini. The company’s valuation has grown by 21.41 percent since Gemini’s initial release.

Amazon (NASDAQ:AMZN) Web Services (AWS) has become an integral part of Amazon’s AI landscape as well, providing tools and infrastructure for businesses like pharma giant Johnson & Johnson (NYSE:JNJ) to build and scale their own AI solutions.

Johnson & Johnson also collaborates with IBM (NYSE:IBM) to leverage its expertise in AI. IBM’s AI platform, Watson, provides domain-specific expertise for various industries including healthcare and customer service. Its architecture combines machine learning and natural language processing, giving it reasoning capabilities beyond pattern recognition.

Nvidia is an industry leader in terms of chip design and has seen its share value increase by nearly 145 percent year-to-date in 2024. While it is certainly the most well-known chip designer, there are a number of other prominent figures in the industry including AMD (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), ARM (NASDAQ:ARM) and Samsung (KRX:5930).

The largest chip manufacturer is TSMC, which is based in Taiwan. TSMC American depositary shares trade on the New York Stock Exchange and have seen growth of 103.89 percent since January 2023. Other major chip makers include Qualcomm (NASDAQ:QCOM) and Intel.

The relationship between Nvidia and TSMC is one of critical interdependence and mutual benefit, similar to the partnership between Microsoft and OpenAI, as both are key players in the semiconductor industry.

How to invest in AI stocks and ETFs now

Seasoned investors with decent knowledge of AI and its applications might want to invest in individual AI stocks. Many of the largest tech stocks offer investors various levels of exposure to AI, particularly ones in the Magnificent 7: Nvidia, Microsoft, Meta (NASDAQ:META), Apple, Tesla (NASDAQ:TSLA), Amazon and Alphabet, the parent company of Google.

To date, Microsoft has committed US$13 billion to OpenAI, and both Alphabet and Amazon are reputable, publicly traded companies that have subsidiary services with generative AI capabilities.

There are also investment opportunities in generative AI, arguably the field's most exciting sector, as evidenced by the reception to OpenAI’s ChatGPT platform. While you can’t yet directly invest in OpenAI, you can invest in companies that are pouring money into generative AI research.

Chipmakers such as TSMC, Broadcom and Qualcomm are options for investors looking to invest in the hardware components needed for AI.

For a list of the biggest US, Canadian and Australian AI stocks by market cap, click here.

If, however, you’re new to investing or AI, an AI ETF might be the simplest way to invest in AI. Some of the most successful AI ETFs are the Global X Robotics and Artificial Intelligence Thematic ETF (NASDAQ:BOTZ), the ARK Autonomous Technology + Robotics ETF (BATS:ARKQ) and the iShares Robotics and Artificial Intelligence ETF (ARCA:IRBO).

For a detailed description of each ETF and more AI ETF ideas, click here.