The discussion around artificial intelligence (AI) has been dominating conversations for most of this year.
How will AI change the workplace? Will AI create a revolution in the education system? What are the risks of AI? This is a complex topic that infiltrates lots of industries and areas of our lives. It’s also a key theme for stock markets in 2023.
One of the key technology trends driving US stocks higher this year is AI, as investors assess how it’s developing and how it will be monetised. Companies that are looking to set the pace in artificial intelligence, including Microsoft, Meta (Facebook), and Alphabet (Google), have seen their share prices soar so far this year.
Here’s a closer look at how AI will develop from here, and what it could mean for your investments and your job.
This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice. All investments can fall as well as rise in value, so you could get back less than you invest.
Kathleen Brooks is Founder of Minerva Analysis, a market analysis company. Hargreaves Lansdown may not share the views of the author.
The rise of artificial intelligence
AI isn’t new. In 1950 Alan Turing discussed how to build intelligent machines and test their intelligence in his paper ‘Computing Machinery and Intelligence’.
In recent years AI has been integral for the processing of big data. For example, AI has powered Google Translate and Facebook’s ability to predict the responses of individuals to personalised adverts.
As we move through the 2020’s, the long form language model used in general purpose technology (GPTs) is the key to AI, and more recently ‘invention in the method of invention’ or IMIs, are also in focus.
IMIs are deep learning tools, that have the potential to reshape the nature of innovation and could transform research and development processes for multiple industries. For example, deep learning models are helping us to better understand genomes and are making progress in the complex field of microbiology.
Big tech and the rise of AI
It’s no surprise that some of the largest tech companies have jumped into AI, hoping to benefit from its potential.
One of the market leaders in this space is Microsoft. Interest in AI has soared since Microsoft said in February that it would add the generative AI chatbot ChatGPT to its Bing search engine.
This was an important announcement for the history of AI for two reasons.
Firstly, chatbots are considered disruptive technology, but it’s being adopted by one of tech’s grand dames.
Secondly, Microsoft executives have said that for every percentage point of market share in the search-engine market it receives, it’s equivalent to a $2bn annual revenue opportunity in advertising. AI could generate massive revenues for tech companies in the future, and therefore the market is taking notice.
Microsoft first invested in OpenAI, the company that created ChatGPT, in 2019. Back then it was an under-the-radar investment of $1bn, however, this investment is now considered some of the best money that the company has ever spent.
Microsoft has invested a total of $13bn in OpenAI, which was founded as a non-profit in 2015 when it was set up to be an alternative to the Google search engine. It’s changed its operating structure since then, and is now a closed profit model, so Microsoft’s return on investment will be capped.
However, investors aren’t too worried about the limit to Microsoft’s return on investment. Instead, Microsoft is being rewarded for being an early market leader in this technology.
But its rivals are striking back. Alphabet, the Google parent company, has launched its own version of ChatGPT called Bard, in an attempt to boost its search engine capabilities.
Beneficiaries of the AI trade also include the industries that will be needed to power AI in the future. For example, Nvidia, a large US chip maker to the AI industry, reported a 19% increase in first quarter revenue for 2023 compared with the first quarter in 2022, at $7.19bn.
Its CEO Jensen Huang predicts that companies will “race to apply generative AI into every product, service and business process.”
Is AI bad news for jobs?
While the rise of AI is good news if you’re the owner of a chip maker, what does it mean for the future of society and the workplace?
An economic study published by the US government in December 2022 looked at the impact of AI on the future of workforces in the US and the EU. It noted that previous technological advances have tended to affect routine tasks, however, the challenge with AI is that has the potential to automate non-routine tasks. That will expose large swaths of the working population, previously unaffected by technological change, to disruption.
The study also noted that an emerging body of research suggests that AI can outperform workers in a range of complex tasks.
If computers can do complex work better than humans, and for a lower price, it’s likely that companies will want to integrate AI into their business models. The US government and the EU both agree that AI will drastically change how workplaces are designed, which will affect working conditions. It argues that businesses will have to re-design jobs for their workforces.
However, it also points out that long-term trends in employment complicate the incentive to retain workers. For example, the trend towards shorter-term contracts means there are lower incentives to train and reskill workers who could lose their jobs due to AI.
The report notes that it’s important for governments to invest in and stimulate AI research that augments workers, rather than automates their jobs out of existence.
Regulation – when limiting progress is a good idea
Perhaps the biggest brake on the progress of AI in the future will be regulation. Ethical questions about boosting AI capabilities so that a machine surpasses human cognitive ability in all tasks could act as a strong barrier to the future of AI.
Serious conversations about the regulation and ethics of AI are already taking place.
The US government, along with the EU, agree that the potential for AI to have a positive impact on the economy and society is unlikely to be realised without proper oversight. They suggest that governments around the world need to produce immediate best practice guidelines for companies that adopt AI. However, in the longer term, regulations will need to be solidified in legislation.
In the US, lawmakers are establishing a ‘Bill of Rights’ to protect the consumer, and equity of opportunity in employment, housing and healthcare – other countries are likely to follow suit. While regulation could act as a brake on AI in the future, in the short to medium term, AI could still be a driver of a tech stock rally.
3 share ideas to make the most of AI
In our next article on AI, we’ll be looking at 3 share ideas that could benefit from its rise.
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