Decoding the AI opportunity
Significant future value creation from artificial intelligence has been pulled forward and reflected in share prices of companies set to benefit from this multi-generational opportunity.
At all times, however, it remains important to separate short-term hype from the potential longer term investment opportunity. This is especially the case when considering AI, given the hyperbolic media attention it has received. Statements like ‘AI may prove more profound than electricity or fire’ might grab headlines but give little insight on how these advances could help a business improve its efficiencies or grow its revenues.
Despite growing acceptance that this technology will have vast implications across the economy, current AI remains ‘narrow’; we are only just beginning to see the multi-model systems emerge that are required for artificial general intelligence.
As AI continues to proliferate, analysts at Capital Group have produced a framework to clarify the opportunities. At present, this is split across compute, infrastructure, models and applications, and beneficiaries, and we believe a research-based approach is key to identify potential winners and avoid potential losers.
The AI cycle appears to be moving quickly compared to those in the past. The cloud computing cycle began around 2008 and more than a decade later, we estimate roughly only 30% of corporate workloads are off premise and in the cloud. In large part, this is because replacing existing IT architecture is a complex and time-consuming process.
AI is very different. For example, if a software vendor adds AI functionality to an existing product it could be deployed in days or weeks rather than years. Added to this is that the big-tech incumbents have the first-mover advantage to deploy AI at scale.
Given the multi-faceted nature of the AI ecosystem, there is no single ‘correct’ way to map out the AI investable opportunity set. That said, an investment framework can help to define potential near and long-term opportunities.
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