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Publicity around ChatGPT has sparked fresh speculation around the promise and peril of artificial intelligence.

But while AI is likely on the brink of causing tectonic shifts across many companies and industries, as investors, it is vital to cut through current noise to analyse developments in the sector and the opportunities that could arise. In this piece, Capital Group portfolio managers and analysts examine recent breakthroughs in the AI space, largely in the ‘generative’ area, and whether the sector may be nearing a commercial tipping point.

A useful comparison for AI is the rise in so-called chess engines: as the chart shows, chess computers have evolved from never beating humans to defeating average players to routinely overcoming the best grand masters ever. 

Chess ability of the best computers

As at January 2023. Sources: Chess.com (2020), SSDF (2022). Chess ability is measured with the Elo rating system, calculated based on game results. A higher rating indicates a player is more likely to win a game. The blue line in the chart represents the increasing Elo aptitude of chess computers, while the grey dotted lines indicate key levels of human ability.

In chess terms, AI is perhaps still only at the point of computers being able to beat the average human, or creating something like a first draft of a document, for example. But AI capabilities are rapidly increasing and appear to be nearing the point where deployment and impact can accelerate: through continued breakthroughs in models, along with context-specific fine-tuning, AI can start to really move the needle on economic productivity.

As the paper outlines, beyond obvious tech and ‘knowledge’ sectors, areas of potential application include supply chain management, healthcare (in drug development and scan analysis), insurance, oil and gas (looking at satellite data), utilities (for grid and load management) and autonomous farming − and AI strategy may therefore become an increasingly important part of company analysis.