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AI and the knowledge revolution: How to invest through the froth
Since ChatGPT arrived with a bang late last year, markets have been verging on obsessed with artificial intelligence (AI) and the investment opportunities it represents. At the Australian Investor Association’s investX Annual Conference 2023, interest in AI was clear – as was the case, made by numerous thought leaders, that a true revolution is unfolding.
For investors, the sheer scale of AI’s possible reach may be intimidating, as the investment landscape gets frothier while billions of dollars pour into a growing mass of companies seeking to capitalise on the trend’s popularity. But AI is ultimately just like any other sector – winners and losers will emerge, and through examination of stocks will go a long way towards identifying companies with real promise.
Calling the current “leap forward” occurring in information technology and AI the “biggest revolution in 300 years,” global futurist Keith Suter (pictured) in a keynote speech described the impact AI is already having on everyday life as well as near-term possibilities, painting a picture where technology both more deeply pervades society and offers new solutions to humanity’s problems.
Suter placed the current so-called knowledge revolution on the same scale as two other great developments: humans’ harnessing of irrigation for agriculture after the last ice age, and the Industrial Revolution beginning in England in 1750.
The Internet now connects more people than ever before, dissolves national boundaries, creates global hits and compresses time, he said. “We’re going through a period where life is getting better and better, and worse and worse, faster and faster.”
The revolution in information technology has already created new opportunities, such as in the sharing economy (for example, Uber) and the expansion of the service economy. Suter also pointed to a new “micro-multinational economy” that allows local businesses to have global reach.
“We’re now on a bridge to the future; we are mobilising human brainpower,” he said. “The wealth of a company comes less from the ownership of land and factories and more from the ideas in the heads of staff.
Liesl Yearsley, founder and CEO of aKin, called AI a “persuasion machine” that “we are getting better and better at, blisteringly fast”, and said it will have impacts on every single industry.
“We must build AI that are rewarded for teaching us to be kind to each other and to our environment,” she said. “We must reward AI that are intrinsically good, from an outcomes point of view, and we must reward companies that do this.
Trent Masters, portfolio manager at Alphinity, looked at the practical examples of AI and what companies are likely to benefit.
“As an investor, I immediately think, with such a technology breakthrough, what is a company that could create some really compelling products and leverage that ability to generate some revenue and earnings off the back of it?” An obvious example, he said, is Microsoft.
Identifying companies with real potential will be especially important in the coming year, according to Yearsley, who foresees “catastrophic failure” beginning as soon as three months from now as AI technology becomes more commoditised and unsustainable companies fall behind.
“Look at who owns their model if you’re investing; experiment with the frothy app developers and the enterprises that are using them, but that’s Death Valley,” she said.
According to Masters, Alphinity invests in AI as it does in any other asset class. “It’s easy to see a new theme work its way through and sometimes lose your mind and get caught up in the froth.”
He therefore relies on three key quant factors in assessing AI-related stocks: momentum, or earnings leadership; quality, and value.
“We try to maintain that portfolio balance even through there’s a degree of excitement around some of the AI potential in the portfolio,” he said.
While AI’s potential power and the many questions it raises can keep one up at night, Suter, the futurist, believes there’s good news: “Just as the world fears impending global calamities, so humanity saves itself by creating a global brain – this Internet – to bring together people and ideas.
“If we assume brainpower is evenly distributed across all population groups, the world has been run by a very limited source of brainpower: white, adult males. Now we’re going to broaden the brainpower to include females and people of colour. We’re going to fully liberate the brainpower of 8 billion people.”
