We’ve all seen the headlines – the AI revolution is underway, says Rahul Bhushan (pictured), managing director, Europe and Global head of index, Ark Invest Europe. 

Early investors have hit paydirt by capturing its earliest stages through innovators like Nvidia, but now AI is no longer a novelty – it’s really starting to impact and change our lives.

From here, the greatest AI returns will not be made in areas where growth has already been but in those where interest is starting to emerge.

This means allocating increasingly to the development platforms enabling the ground-breaking technology to deliver incredible productivity gains out in the real world.

AI is not a hardware story alone; it’s end-uses are its entire purpose.

It’s why we expect quality companies facilitating AI’s deployment at scale to deliver some of the greatest performance on the market over the coming years.

From hardware to software

Hardware stocks have dominated AI spending and investment to date.

Chip manufacturer, Nvidia, has emerged as the de facto face of the AI movement, becoming one of the world’s largest companies by market cap in just a few short years.

Other “behind-the-scenes” names like Taiwan Semiconductor Manufacturing Company and Teradyne, have also seen significant gains.

The growth is understandable; after all, there’s no AI without chips.

However, the chips need to be put to good use. And that means powering end-use products and services really using AI to drive productivity gains.

So far, AI’s end-uses have received limited hype and investment relative to the manufacturing side of the value chain.

But now the chip space has matured enough for providers in these areas to emerge properly and begin scaling up revenues, we expect the focus to shift.

We’re already seeing interest in the cloud space grow.

Infrastructure-as-a-service (IaaS) is democratising access to the powerful AI capabilities providers have integrated into their offerings.

Cloud giants like Amazon, Google, and Microsoft are all reporting massive AI-drives increases in their revenues. IaaS revenues as a whole, meanwhile, have grown at an impressive compound annual growth rate of 26% over the past four years.

We expect the trend to continue, but one area that remains largely untapped is the investment opportunity in the AI development platform space.

These are the Platform-as-a-Service and infrastructure software providers supplying developers with the tools they need to build end AI applications. This, in turn, enables companies to create custom software tailored to their exact needs in-house.

AI development platforms greatly increase productivity. We’ve already seen Amazon announce its internal AI-powered assistant has delivered performance improvements worth $260m in annual cost savings.

And, thanks to the remarkable cost declines present in the AI space, they are becoming a lot more affordable.

As things stand, Software-as-a-Service represents the largest sector in the cloud stack, with companies typically relying on solutions like SAP and Salesforce to run their operations.

But these solutions are pre-packaged with limited customisability. Businesses often end up having to adapt to fit their software rather than the other way around, limiting productivity gains.

We see a future where these solutions are increased displaced as more and more companies opt to build their own software using AI.

Payment giant Klarna has already announced the planned phase-out of two of its SaaS platforms, Salesforce and Workday in favour of in-house AI tools. As more follow suit, we expect AI development platform revenues to remain at, or even improve upon, the 31% compound annual growth rate seen over the past four years.

Leaders in the space like Palantir, GitLab, and Datadog will be particularly well positioned to see their valuations grow in the face of soaring investment.

First-mover advantage

The AI revolution may have already been huge. But really, we’re still in the early stages.

Today, investors must expand their focus beyond hardware and begin thinking about the companies harnessing AI’s full potential. And there’s no better place to start than the AI development platforms enabling it to be deployed across the world at scale.

Increase your exposure today, and let the productivity gains we’ll see a few years down the line do the talking.

By Rahul Bhushan, managing director, Europe and Global head of index, Ark Invest Europe