June 2023 - AMI's Equity Portfolio Manager Andy Zamfotis discusses the impact of Artificial Intelligence on the markets and society at large.
“Artificial Intelligence (AI) refers to the development of computer systems that can perform tasks requiring human-like intelligence, such as speech recognition, decision-making, and problem-solving. AI has the potential to bring numerous benefits to society. It can enhance efficiency and productivity across various sectors, including healthcare, transportation, finance, and entertainment. AI-powered technologies enable faster and more accurate data analysis, leading to improved diagnostics, personalized medicine, and optimized treatment plans in healthcare. In transportation, AI can enhance autonomous driving systems, reducing accidents and congestion. Moreover, AI-driven algorithms can streamline financial transactions, detect fraud, and provide personalized recommendations.
The latest craze surrounding AI lies in generative AI, which enables machines to create original content such as art, music, and writing. This capability has sparked excitement as it opens up new creative possibilities and challenges the notion of human creativity. Generative AI has the potential to revolutionize various creative industries, offering new tools for artists, musicians, and writers to explore and innovate. It also fosters collaboration between humans and machines, pushing the boundaries of what is possible. This combination of creativity and collaboration has captured the imagination of many and has the potential to redefine artistic expression in the future.”
You might be surprised to learn that the above two paragraphs were written entirely by ChatGPT, one of the more well-known text-based generative AI systems from the AI research lab OpenAI. A computer was able to generate two well-written paragraphs from a very simple prompt:
This capability is now being used by corporations worldwide to make their products and services better. Essentially, AI can learn or “be trained” on any large data set and can then produce insights using a text-based, non-technical prompt. For example, Adobe (AMI Large Cap Growth holding) recently announced how it is using generative AI to allow users of its popular Photoshop software to create images just by using a text prompt like the one above. Adobe has massive amounts of images that would take humans years to review. The company’s software can use AI to instantly consume that data and allow a user to generate a completely new image. This will help expand the user base beyond trained graphic design professionals, which should help the company’s growth. Salesforce (AMI Large Cap Growth holding) is using AI to consume all the data about a particular customer (and other similar customers) and give a salesperson auto-generated material to send to a client which is based on their past actions. Additionally, AI continuously learns, so that as more data is made available, the resulting output becomes more relevant and potentially better organized.
Below is an example of how any user can create any image using a simple text prompt. The image was created using Microsoft’s (AMI Large Cap Growth holding) Image Creator, which is powered by DALL-E, the AI image creator developed by OpenAI, the company that produced the text creation app ChatGPT.
Using this prompt:
This image was generated in seconds:
Tech security company Palo Alto Networks (AMI Large Cap Growth holding) is using AI to better predict that a certain activity on a corporate network is indeed malicious, allowing a company to take steps to block it. The goal for Palo Alto, Salesforce, and Adobe is to use AI to make their products better for their customers and to charge those customers for the additional value they receive. Soon, having AI embedded in a product or service will become table stakes for customers. Not using AI may be perceived as a deficiency.
Currently, any company who merely mentions AI is seeing its stock price benefit as investors get excited about its potential. As a result, valuations have risen significantly before we’ve seen any measurable results. While this is reminiscent of companies in the early 2000s who added “.com” to their name, this AI boom has a major distinction. The vast majority of companies deploying AI are profitable and have successful products already in the marketplace. At least for now, AI is being used as a way to enhance products or services in order to improve the efficiency and productivity of the end user. It will take some time to see who is deserving of a higher valuation.
Generative AI isn’t only limited to technology-related companies. Major pharmaceutical companies have discussed how AI can be used to better formulate new drugs. Manufacturers can use AI to better design new parts or machines that might have taken several engineers a long time to create. Within the consumer space, AI is helping companies use data to improve R&D efficiency and marketing efforts.
The efficiency gains AI will enable are not to be overlooked. A recent report by Goldman Sachs estimated that AI could raise global GDP by 7%, primarily due to it enabling workers to become more productive through automation. While many companies using AI to improve productivity should benefit, the enabling technologies should also be big winners.
Alphabet (Google) and Microsoft (both AMI Large Cap Growth holdings) have their own generative AI software models. Microsoft invested in OpenAI which powers ChatGPT and the DALL-E image creator. Google has its own generative AI software, named Bard. These companies are using AI to improve search and other products (like Microsoft Office), but they are also partnering with other companies who want to use this software to improve their own product or service. Companies like Nvidia and Synopsys (AMI Large Cap Growth holding) are involved in the design of chips that will be used to power data centers needed to run all these various AI-enabled applications.
Not everyone is excited about this AI boom. Critics of AI believe that there should be regulations surrounding the use cases given the potential national security, ethical, and safety concerns. While there have been some hyperbolic comments such as machines wanting to annihilate humans, there are far more realistic abuses that could cause concern. As an example, AI could generate an image of a politician doing something nefarious (these are known as “deepfakes”). These images would be indistinguishable from real life images. Another example could be the use of AI to hack critical IT infrastructure by a domestic hacker or a state-sponsored group. This is why a select group of technology leaders and ethicists have been vocal about slowing down the pace of AI innovation until appropriate guardrails have been placed. Thus far, that opposition has been met with mixed reactions. Both the Biden Administration and Congress have publicly acknowledged an intent to do something about these potential issues.
This is an example of a deepfake image that was widely circulated around the Internet of former President Trump being grabbed by police. Many people believed this incident actually took place, but it was completely generated by AI.
There will be winners and losers in AI and the early gold rush will be exciting to witness. As these companies start to release AI-powered versions of their products, investors will need to see which companies gain a benefit relative to the capital they invest to develop these new products. Companies which do gain a benefit should ultimately be rewarded over time.
“In conclusion, the transformative power of AI promises to revolutionize industries, enhance efficiency, improve lives, and unlock unprecedented levels of innovation. Embracing AI opens doors to a brighter future for all.”
Yes, that last paragraph was also written by a machine. Apparently, AI thinks very highly of itself.