Prepare for the growth of artificial intelligence

Outlook 2024Prepare for the growth of artificial intelligence

Artificial intelligence (AI) presents a myriad of investment opportunities, driven by its potential to revolutionize productivity and spur economic growth. Understanding its evolution, current state, and future prospects is crucial for making informed investment decisions in this rapidly advancing field.

The need for productivity growth is critical, especially against current fiscal deficits and inflation. The internet's first wave was led by consumer commerce and social media. The next wave, driven by AI, promises a boost in productivity. As demographics become less of a tailwind for economic growth, productivity enhancement is key for overall economic growth, which is desperately needed to address the current fiscal deficits in many economies. Even if generative AI does turn out to be the next “iPhone moment,” investors need to keep their eyes wide open, as the first mover isn’t always the winner in the end.

We believe it is critical to have an investment framework that balances the opportunity and risk. While we don’t know what new products or industries will be created, we are starting to see winners emerge in the infrastructure buildout and getting a sense of how some companies are aiming to enhance their current product sets.

A framework for evaluating generative AI investment opportunities

Infrastructure buildout icon

Infrastructure buildout

Infrastructure buildout (0-3 years) – The initial beneficiaries will provide the tools and infrastructure to support the growth of generative AI. Semiconductors and data centers appear to be the main benefactors of this infrastructure buildout.

Product enhancement icon

Product enhancement

Product enhancement (2-5 years) – The second stage of AI development will include existing companies using AI to improve their current products. We are starting to see this take shape with enhanced spreadsheets and coding. This stage may also lead to easing of labor shortages across the economy by enhancing the AI capabilities in call centers and drive-throughs.

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New product

New product/industry (5+ years) – We believe new products and industries will emerge that haven’t even been thought of yet. Just like Google didn’t go public until well after the dot-com boom, we will see massive opportunities in companies that don’t even exist today. Although this is exciting, we believe it is important to proceed with caution.

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