The expanding AI horizon

Benefits and threats

Mikhail Martynenko

Associate Investment Consultant

Every decade witnesses a monumental shift in the tech world. The 90s saw the rise of the internet, the 2000s ushered in cloud computing, and mobile technology dominated the 2010s. Now, the 2020s could be the era of Artificial Intelligence (AI) – the next massive stride in technological innovation.

Imagine AI as a super-efficient brain powered by intricate algorithms and trained using vast sets of 'Big Data'. This training enables AI to make decisions without specific programming, offering insights with a speed and accuracy surpassing human capabilities, all thanks to advanced processors like graphics processing units (GPUs). From smartphones to financial markets, AI applications are vast and far-reaching.

The AI employment paradox

The data-driven ability of AI not only promises a leap in productivity but also signals a potential surge in global GDP growth. Generative AI, which can produce original content, stands as a testament to AI's evolving capabilities. Its adoption, however, will likely vary by country. In developed nations, the higher costs of labour are likely to make automation more economically viable compared to developing countries, where the cost of automation will be weighed against human labour costs. Here, the role of governments becomes crucial to manage employment dynamics and ensure that the transition is smooth and equitable.

Goldman Sachs research suggests that while AI might automate many roles, it doesn't necessarily spell doom for employment as around 60% of today's job roles didn't exist in 1940. Historically, technology has given birth to new job sectors, and this is a trend expected to persist in the future.

AI has the potential to reshape global economies and job markets, making governance key to a smooth transition.

Unleashing productivity: AI's impact on business functions

Productivity has historically been a crucial factor in driving GDP growth, and AI technology is anticipated to amplify this trajectory. This might mirror the developments of the first decade of the 21st century, when the rollout of internet-based technologies resulted in marked improvements in efficiency.

McKinsey's study offers a deeper understanding of the potential of generative AI. Assessing 16 business functions, the research suggests that four functions could harness up to 75% of the total value from generative AI applications. These four functions are:

All sectors, especially banking, high-tech and retail, are projected to benefit immensely. According to McKinsey’s study, generative AI could potentially increase global economic output by up to a staggering $4.4 trillion per year.

Take the banking sector, for instance. It’s a sector rife with opportunities for AI integration, given its digital landscape, customer-centric operations, and strict regulations. Enhanced operations, personalisation, and unique industry characteristics make it ripe for AI adoption. A few promising applications include AI-powered chatbots for efficient customer service, tools for accelerated code development, and the creation of tailored marketing content. According to McKinsey’s research, generative AI might even augment the sector's annual revenues by a $200-$340 billion through productivity improvements.

The silicon backbone: AI's supply chain

Investors eyeing the AI supply chain should take note of the semiconductor sector. With AI's escalating importance, the supporting infrastructure demands major overhauls.

We're talking about AI servers needing ten times the memory content of traditional ones, signalling a spike in the demand for innovative semiconductors. Transistor sizes in semiconductors have dramatically shrunk since the 21st century's inception, making them the powerhouse behind AI advancements.

Companies like NVIDIA, with their footing in the AI and semiconductor sphere, are poised to thrive in this AI-driven landscape, a sentiment currently reflected by their soaring stock prices.

Asset management perspective

Some asset management firms have confirmed the integration of AI technology into their operations. Some have emphasised use of AI , particularly Natural Language Processing (NLP), in the investment process for data analysis. Some firms have created their own secure AI tools, similar to ChatGPT, for handling sensitive data. These custom solutions aim to protect data privacy and improve the accuracy of decisions and reporting. These developments indicate a growing recognition within the industry of AI's role in influencing future investment approaches and operational effectiveness.

Ethical and security implications of AI

AI, despite its promise, presents considerable threats:

Job automation: AI's efficiency may lead to widespread job losses across sectors, exacerbating income disparities.
Privacy concerns: In our data-driven age, AI's heavy reliance on personal data brings up significant privacy issues, compounded by unclear data collection practices.
Security risks: AI's integration into vital infrastructure can introduce new vulnerabilities, including potential AI hacks and the dangers of AI-powered weaponry.
AI bias: AI can unintentionally amplify human biases present in its training data, potentially resulting in discriminatory outcomes.
Potential misuse of AI: Absent strict regulations, AI can be misused for manipulating opinions or spreading false information. The rise of "deepfake" technology further threatens digital truth.

Conclusion

AI is not just the next big thing; it's the transformational force of this decade. The immense potential it holds, from business productivity to economic growth, are undeniable. However, a balanced approach, considering both its opportunities and challenges, will be key to harnessing its full potential.

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