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20 July 2023

The Growth of Artificial Intelligence

In the realm of technological advancements, few innovations have captured recent attention as much as Artificial Intelligence (AI). While the subject of AI is extremely broad, it ultimately encapsulates a machine’s ability to perform the cognitive functions we associate with human minds, such as perception, reasoning, learning, interacting with an environment, problem-solving, and even exercising creativity. In recent years we have seen a significant shift away from a predefined logic, where humans instruct computers on how to behave, to an era of computers autonomously learning how to act. While the term AI may be a new one to many, the transition has taken decades to arrive at where we are today and the germination of AI can be traced back to the early days of computing, when pioneers laid the groundwork for the concept of intelligent machines. Fast forward to the latter part of the 20th century and AI truly began to take shape in tandem with the rapid development of the digital world. We began to see breakthroughs in the way computer programs started to simulate human intelligence, especially with the capability of altering its behaviour in response to input data, and saw AI begin to exhibit remarkable capabilities.
 
Although AI can be used as an umbrella term for the variety of individual systems and machine learning mechanisms that sit within it, the extent to which AI has been integrated into the world is remarkable. From analysing vast amounts of data, recognising patterns, making predictions with uncanny accuracy and enabling the use of voice assistants through to the likes of Siri, Alexa and Cortana. But AI’s impact extends far beyond consumer applications. Industries such as healthcare, finance and manufacturing have all witnessed a seismic shift towards using AI algorithms, revolutionising processes, increasing efficiency and unlocking new possibilities. From diagnosing diseases to optimising supply chains, AI has become a catalyst for innovation and progress. Yet, the journey of AI is far from complete. As we stand on the cusp of a new era of technology, we are likely to see AI continue to evolve and push the boundaries of what was once thought possible.
 
While its growth has been quite evident across financial markets, we have seen three key driving forces behind these advancements within AI in recent years. The first is the mass of data available as a result of the growing interconnections within the digital world. This abundance of data serves as fuel for AI systems, enabling them to learn, recognise patterns, make informed decisions and improve accuracy within processes which could ultimately open new doors to more innovative functionality. Secondly, the increase in the speed, capacity and availability of powerful computers, graphic processing units (GPUs) and semiconductors have all made it possible to train and run AI algorithms on large datasets, which has improved performance and capabilities. The third driving force comes from private sector investment with many companies, including Google and Microsoft, investing billions in AI research and developing their own AI technologies and applications through the likes of ChatGPT. As all three of these drivers continue to increase over the next few years, we are likely to see continuous expansion within the technology.
 
As demand grows for this technology we could see businesses that leverage AI stand a better chance of developing competitive advantage. Whether through algorithmic advertising, analysing customer feedback to identify issues or providing products specifically designed for clients, those businesses which take advantage of the resources available will likely develop a more tailored experience for customers which could ultimately drive sales and provide better insights for future developments. Apple is just one example of a company that has been able to combine a strong market position with the integration of AI to provide an immersive product for customers through the use of the FaceID feature, or in products such as AirPods, Apple Watch, or HomePod smart speakers, where it enables the smart assistant Siri. Apple is also growing its service offering and is using AI to recommend songs on Apple Music. Another prime example is Netflix, which uses technology to create personalised engagement to rank search queries and recommend shows to watch. Interestingly, the company believes the use of this AI system has saved it more than US$1bn a year from customer retention, with 80% of customer video choice coming from recommendations.
 
While those integrating AI into their business models have benefited from doing so, the companies at the forefront of the AI rally are arguably the semiconductor manufacturers and software developers. It isn’t surprising that the poster child of the current AI boom is NVIDIA, the world’s most valuable listed semiconductor company and a market leader in engineering the chips, systems and software components that make up the AI machines used by the likes of Google and Microsoft. Year-to-date, the share price has returned roughly 200% after a series of results coming in above expectations. It looks as if the company is currently at the forefront of the technological charge while maintaining a competitive advantage within the industry, which could be key for growth over the long term.
 
Unfortunately, not all companies have been able to harness the benefits of AI. Chegg, an educational product and service provider which offers homework help, digital and physical textbook rentals, textbooks, online tutoring, and other student services, has been hit hard by the recent AI boom. The company’s share price fell by 63% between January and May of this year with Chegg’s CEO Dan Rosensweig raising potential concerns around the disruption that AI could have to the business, saying “Since March we saw a significant spike in student interest in ChatGPT. We now believe it’s having an impact on our new customer growth rate.” Despite the downbeat announcement, the company has released plans to build its AI Chat function in partnership with OpenAI as a way of gaining back its audience base - one thing that will be interesting to see is how Chegg now plans to navigate through a period of rapid innovations in the learning space, which could present a new layer of risk for the company. Therefore, while we don’t have a crystal ball, it is likely that those who harness AI’s potential to drive innovation, productivity and efficiency will likely gain a competitive edge, creating new business opportunities, and enhancing customer experiences. However, those who fail to embrace or adapt to AI may face disadvantages, lagging in a rapidly evolving field.
 
To summarise this article, I thought it would be fitting to let ChatGPT write an outlook for AI, enabling you to see the capabilities of a Chatbot on the internet. I simply asked ChatGPT to write a 100-word summary about the future of artificial intelligence, and this is what it came up with:
 
“The future of Artificial Intelligence (AI) holds immense promise and potential. AI is expected to continue its rapid evolution, enabling advanced automation, personalized experiences, and improved decision-making across industries. As AI algorithms become more sophisticated and capable of handling complex tasks, we can anticipate breakthroughs in healthcare, transportation, finance, and beyond. However, ethical considerations, transparency, and responsible AI deployment will be crucial in ensuring AI’s positive impact. Collaborations between humans and AI, known as augmented intelligence, will empower individuals and organizations to leverage AI’s strengths while maintaining human oversight. While challenges and uncertainties lie ahead, the future of AI is poised to bring transformative changes, revolutionizing our lives and shaping a new era of technological innovation.”

This article was taken from the June 2023 issue of Market Insight. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.
 
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
The Growth of Artificial Intelligence

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