"The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the internet, and the mobile phone. Entire industries will reorient around it. Businesses will distinguish themselves by how well they use it." Bill Gates1
Excitement around progress in artificial intelligence (AI) has been building rapidly in tech circles in recent years, but the wider world remained nonplussed – until recently. Following its release in late 2022, ChatGPT2 attracted 100 million users in just three months, provoked a media frenzy and became one of the most talked-about tech developments of recent times, leaving competitors like Alphabet, Meta and Baidu scrambling to release similar products.
Amid the deluge of announcements from tech companies, it is easy to see AI as a ‘tech story’. AI offers outstanding opportunities for some tech companies and will be hugely disruptive or even fatal for the business models of others. Yet the most significant impacts – and investment opportunities – are likely to be found elsewhere, as this powerful technology with the potential to accelerate productivity, spur creativity and reduce costs, is applied across the wider economy.
There is, however, one key difference between AI and previous transformative new technologies, such as railways, electrical power and the internet. These took decades to penetrate the global economy fully as the associated infrastructure of railway lines, electricity grids and telecommunications networks was painstakingly put in place. In contrast, the infrastructure needed for AI already exists. With widespread internet access, billions of personal computing devices, and a global network of cloud computing datacentres already in place, AI’s transformative potential can be unleashed almost overnight.
Whatever one’s views of AI, it is being adopted rapidly and disruption is guaranteed. We believe its overall impact is likely to be positive, but it is up to all of us to develop the norms and demand the regulations and governance that ensure we maximise its benefits, while mitigating the potential harms.
Usability is the killer app
ChatGPT’s success is not simply due to first-mover status and great public relations. New architectures, algorithms and astonishing amounts of data and computing power have turbocharged the latest AIs, known as ‘foundation models’. These show increasingly impressive abilities to comprehend relationships between data, and form a rudimentary understanding of concepts expressed in language, images or other forms.
The latest foundation models, such as GPT-4, outperform many humans in maths, logic and image recognition tests, and demonstrate particularly impressive language skills, with an incredible ability to parse the meaning of text inputs and generate outputs, even across multiple languages.
These impressive abilities to understand, manipulate and generate language will directly impact industries like journalism, marketing and translation, but the bigger impact will come from the profound change in the human relationship with technology that this empowers. Ordinary users can now interact with software or even create personalised software in a natural, conversational way. When a user interacts with an AI model like ChatGPT, they are essentially reprogramming its software to produce a response, an activity that would have previously required a team of software engineers.
AI won’t take your job – but an AI-assisted human might
AI will undoubtedly disrupt the technology sector, but the precise impacts are difficult to predict. The clearest beneficiaries are the broad enablers of digitalisation, such as TSMC, ASML and Nvidia. These companies dominate the design and production of the sophisticated semiconductors that underpin AI models. Similarly, IT consulting firms like Accenture that advise on how to use new technologies, could also benefit.
Other potential beneficiaries are software providers, as their products become more useful and valuable in daily life.3 However, this may also reduce the barriers to entry in software development, thus increasing competition across the software sector. It can further highlight the importance of competitive advantages such as proprietary data, network effects and customer relationships. Customers could get the better end of the deal initially, but over the longer term, companies are likely to discover ways to monetise at least a portion of the consumer surplus.
There are several potential pathways for the development of AI-enabled products. We could see a proliferation of application-specific AIs, with each one trained to deliver the best performance for the lowest cost in its particular niche. Longer-term, these could be superseded by next-generation digital personal assistants, like a mobile, multi-media ‘Siri’ or ‘Alexa’ that interacts with all forms of software on our behalf.
Outside of the tech sector, the prizes for seizing the lead in applying AI could be even greater. Early adopters that deploy AI efficiently in their businesses to automate, speed up processes and leverage data could gain market share across a swathe of industries. More broadly, AI could finally solve the ‘productivity puzzle’, in which technological advances since the 1980s have failed to produce stronger economy-wide productivity and growth. If, as some suggest, this has been driven by a lack of sufficiently cheap and flexible software, then the removal of this bottleneck could see a sharp, sustained improvement in productivity and living standards.
AI can help solve problems – or make them worse
New general-purpose technologies, particularly new media technologies, tend to cause societal disruption before new norms emerge. The humble printing press shoulders some responsibility for the religious Reformation and Europe’s witch-hunting mania of the early modern period.4
What will AI bring? A fight over copyright seems certain. Pre-dating ChatGPT by a year, OpenAI’s Dall-E image-generating model saw great popularity. However, AI-generated art has been accompanied by a string of court cases brought by artists whose work has been used to train AI models. Is this plagiarism and copyright infringement, as critics claim, or more akin to the inspiration inherent in any form of artistic creation?
A wider concern is how AI-powered news, work, entertainment and education will shape our societies and cultures. As AI-powered software plays a greater role in our lives, the values implicit in it become more important. The development of regulation and usage norms will be essential, but establishing these could be a painful process. Some parties will favour maximum regulation – to protect their businesses, intellectual property or cultural values – and some states will regulate to preserve tight social control, or reduce the risks of a runaway ‘artificial general intelligence’. Battles over copyright, centralisation versus decentralisation, on-device use or cloud-based approaches will all be important and could ultimately be influenced by regulation.
A thematic lens adds clarity
The present hype around AI is redolent of crypto mania and Ready Player One expectations for the metaverse. In reality, most significant technological breakthroughs take decades to overcome teething problems and for economies to take full advantage of them. In the case of AI there is the potential for a lot to happen very quickly, but legal and ethical issues, as well as regulatory intervention could delay widespread deployment.
In the near term, AI will continue to be primarily a productivity-enhancing tool, particularly for creators and software programmers. In time, it is likely to be used to reduce boring or time-consuming tasks and improve life in myriad ways, for example through personalisation of services such as entertainment and education.
Longer term, AI has the potential to boost productivity and living standards dramatically. By removing the bottleneck of costly software, we could see the digitalisation of economies accelerate further, boosting productivity. For example, a lack of suitable software has prevented technology from having a big impact in the education or health sectors; with AI, the promise of truly personalised and dramatically more effective learning and healthcare could be achieved. If the leading AI models continue to progress at the current rate, it’s feasible to hope these could help unlock solutions to some of greatest challenges facing our society, such as developing new materials and technologies needed to address climate change.
While it is too early to assess the implications for individual companies, these will undoubtedly emerge after a period of disruption and adjustment. In our view, a thematic, fundamental investment approach is key to spotting and understanding the complex ramifications of tech breakthroughs such as these. We believe the effect of AI will be transformative for the economy, and wider society, and we keenly follow the progress of this exciting space.
1 Wall Street Journal, Bill Gates Says AI Is the Most Revolutionary Technology in Decades, 22 March 2023
2 GPT stands for ‘generative pre-trained transformer’.
3 For example, Microsoft recently announced a suite of AI ‘co-pilots’ for supply chain managers, marketers and salespeople, The Economist, 6 March 2023.
4 The widespread dissemination of non-Latin bibles, Protestant pamphlets and Heinrich Kramer’s Maleus Maleficarum (1487) would not have been possible without the technology of the moveable type printing press.
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