At Sarasin’s Spring Seminars, Josh Sambrook-Smith, Equity Analyst, took attendees on a tour behind the AI curtain.
Artificial intelligence (AI) has undeniable potential to improve our lives in myriad ways. For investors, the key questions are: who will ultimately benefit from AI, and is this a responsible investment?
Anyone who has dabbled in tools such as ChatGPT and DALL.E has almost certainly been wowed by their remarkable abilities - and probably frustrated by their shortcomings. These are still early days for AI in the wider world, and we are just beginning to comprehend its amazing potential and get a feel for its limitations.
Generative AI tools such as ChatGPT and mark a step change from older AI models used to analyse medical scans or assign probabilities to outcomes such as credit defaults or next week’s weather.
What distinguishes generative AI is its ability to create completely novel outputs such as images or text that can be indistinguishable from those created by humans. At the cutting edge of generative AI are ‘multimodal’ models such as Midjourney, which translate inputs from one form, such as a text instruction, into another form, such as video.
These tools open up vast potential for increasing productivity, creativity and efficiency in industries as diverse as engineering, computing, pharmaceuticals, marketing, consultancy and the creative arts. In the investment world, the response has been enthusiastic, causing the share prices of the ‘Magnificent Seven’ largest US tech companies to rise in aggregate by over 100% in 2023[1].
Deus ex machina or just BAU?
There are - and will continue to be - companies that do very well indeed from AI, and we aim to participate in their success. These include providers of cloud services, makers of semiconductors and networking hardware, and owners of large, useful datasets.
But there is a distinct possibility that, for many, AI will not be their saviour. Rather, it could become an additional cost of doing business and keeping up with the Joneses – a cost that many companies may struggle to pass on to their customers.
While new technology can tip the balance in favour of a company, sustaining that advantage is a different matter. In the end, there is no free lunch. What really matters in the long run are more traditional considerations, such as market structure, barriers to entry, competitiveness, unique competencies, strategies and the quality of a company’s management.
Ethical AI
We must also be keenly aware of – and manage – the risks associated with AI, which include data security, deep fakes and potential to influence elections. Sarasin & Partners’ Stewardship team is participating in stakeholder groups to work with tech companies, regulators and like-minded investors to proactively manage these risks.
We are optimistic that - like most previous technological advances - AI can be a force for good, improving productivity and living standards and creating new jobs. And this could happen relatively quickly: unlike previous advances such as the railways, electrification and the internet, the infrastructure needed to disseminate AI already exists.
[1] Source: Bloomberg, as at 31 December 2023, US dollar returns
Important information
This document is intended for retail investors and/or charities. You should not act or rely on this document but should contact your professional adviser.
This document has been issued by Sarasin & Partners LLP of Juxon House, 100 St Paul’s Churchyard, London, EC4M 8BU, a limited liability partnership registered in England and Wales with registered number OC329859, and which is authorised and regulated by the Financial Conduct Authority with firm reference number 475111.
This document has been prepared for marketing and information purposes only and is not a solicitation, or an offer to buy or sell any security. The information on which the material is based has been obtained in good faith, from sources that we believe to be reliable, but we have not independently verified such information and we make no representation or warranty, express or implied, as to its accuracy. All expressions of opinion are subject to change without notice.
This document should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this material when taking individual investment and/or strategic decisions.
The value of investments and any income derived from them can fall as well as rise and investors may not get back the amount originally invested. If investing in foreign currencies, the return in the investor’s reference currency may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results and may not be repeated. Forecasts are not a reliable indicator of future performance.
Neither Sarasin & Partners LLP nor any other member of the J. Safra Sarasin Holding Ltd group accepts any liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. The use of this document should not be regarded as a substitute for the exercise by the recipient of their own judgement. Sarasin & Partners LLP and/or any person connected with it may act upon or make use of the material referred to herein and/or any of the information upon which it is based, prior to publication of this document.
Where the data in this document comes partially from third-party sources the accuracy, completeness or correctness of the information contained in this publication is not guaranteed, and third-party data is provided without any warranties of any kind. Sarasin & Partners LLP shall have no liability in connection with third-party data.
© 2024 Sarasin & Partners LLP – all rights reserved. This document can only be distributed or reproduced with permission from Sarasin & Partners LLP. Please contact [email protected].