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Get Think Tanked Distilled with Dave Mazza

It seems like the entire narrative in the financial markets right now centers around artificial intelligence and how investors can harness it in their portfolios. Dave Mazza, the Chief Strategy Officer at Roundhill Investments, thinks his company has the answer. Roundhill’s recently launched an ETF designed to capture the potential of this innovative and rapidly evolving space. He joins the ETF Think Tank to discuss this product and the AI landscape as a whole.

Although various forms of AI have been around for decades, we’re just in the very early stages of it becoming revolutionary to the way we live and work. Mazza says that ChatGPT revolutionized AI in the same way that the iPhone did for communication. Many corporations today recognize they’re going to get left behind if they don’t incorporate generative AI into their long-term strategies.

One of the biggest questions/concerns around generative AI is how it can be regulated or what people should do to self-regulate. Even in just the past year, the nature of what’s right and wrong is being accelerated. Mazza thinks that it’s unreasonable to believe that Congress is quickly going to get behind regulating artificial intelligence. Right now, it’s used by students writing essays for school and people creating images online, but what happens when a drone with facial recognition begins targeting people? Individual companies are more likely to try to put up some guardrails on this first.

The biggest challenge as AI develops is where the line gets drawn and who pulls the plug if something gets out of control. It’s good that this dialogue is occurring now at the outset before the technology really gets developed. In essence, it’s the opposite of TikTok where usership is already embedded and it’s being used by millions around the world daily. Right now, AI is human-led and is only as good as the human prompts going into it, but that will begin changing quickly.

Mazza explains that there’s a big difference between AI ETFs and AI-driven ETFs. Today, the fund’s AI holdings are pretty concentrated and part of that is due to the fact that there are so few companies that are meaningfully involved in this space. The portfolio typically consists of 25-50 names at any given time, but there are currently about 30. Before, it was harder identifying names because companies were so quiet about their involvement. The challenge now is identifying which companies are actually building and developing versus those that are just talking about it. Are companies actually spending or not? In terms of weighting the portfolio, some considerations are how many mentions it has to generative AI and whether they have material revenue coming from generative AI. They don’t receive a weight in the portfolio just because they’re talking about it.

Holdings of the ETF, such as Chinese tech companies, are involved in the next step of the generative AI process. They’re creating their own language recognition models. You’ll have the infrastructure companies, and you’ll have the enterprise software companies.

Other key takeaways:

  • The terms “AI” and “generative AI” get used interchangeably, but there is a difference. AI simply teaches a computer to do something that a human could do, more like a chat bot. Generative AI includes actual intelligence, such as what you get from ChatGPT. You provide a few simple terms and get more in-depth responses.
  • Mazza says that even though we’re in the early days, generative AI could be a $120 billion market in the next 10 years with the potential of penetrating 50% of the market.
  • ChatGPT is a foot in the door, but it’s not where the money is going to be made. That will come from things, such as developing cybersecurity solutions and helping doctors develop better care solutions?
  • We’ve seen just a little bit of evidence that AI is impacting jobs, but people are mostly just extrapolating minimal data. Office administration, legal, architecture, social/physical sciences and basic business operations are likely to be affected most.

For more information, please visit https://www.roundhillinvestments.com


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