- How did we get here?
- Where do we go now?
- Investing in AI
Imagine a world where you can converse with artificial intelligence (AI) in a way that’s almost indistinguishable from human interaction. It sounds like a scene from a sci-fi movie, but as of last November, it’s become a sudden reality.
By now, you’ve probably heard of ChatGPT, an AI language model developed by OpenAI. It understands human language and generates a response that closely resembles what a human might say.
Going deep into AI is well beyond the scope of this article. But suffice to say that ChatGPT can understand the nuances of human language, process vast amounts of data, and provide insights better than anything else we, the general public, have seen until now. It’s original, inventive, and, at times, even witty (see an example at the end of this piece).
How did we get here?
AI research dates back to the 1950s, but progress was slow due to limitations including lack of computing power and data availability. (To train AI models, you need massive amounts of data). Fast forward to today. Advances in computing power – faster, cheaper, and able to process massive amounts of data – and the availability of Big Data (we can thank the internet and social media for that) have made the existence of ChatGPT-like products possible.
The recent advances in AI have far reaching implications and raise important ethical and philosophical questions, but here we will focus on why you should care as an investor.
Where do we go now?
Although we’re still in the early stages of adopting these AI models, one thing is clear – the technology will likely prove to be revolutionary in more ways than we can imagine.
Take cloud technology for example. Today, we’re used to streaming movies on Netflix, listening to music on Spotify, and working remotely. But these would have been impossible without the existence of the cloud. We can expect a similar playbook with AI. New businesses harnessing the power of AI will emerge, as will new ways of doing things.
Investing in AI
From an investment perspective, several questions have yet to be answered: How do you define the AI market? How large will the market be? Who will be the winners and losers? The list goes on. We don’t know when we’ll have these answers. Yet what we do know now is that some companies will benefit immensely. And therein lie the investment opportunities.
Some of the clear beneficiaries in the move to AI appear to be the Big Tech companies that spend billions annually on R&D and acquisitions to stay on the cutting edge of technology.
In our U.S. portfolio, we’re exposed to AI through the usual suspects: Microsoft, Google’s parent, Alphabet, and NVIDIA, as well as the not so obvious Fabrinet. These are all established companies with multiple revenue streams, meaning risk is lower when compared to investing in an early-stage AI businesses. We always invest with a valuation in mind. Even if the company is great and the story sounds compelling, if the valuation doesn’t make sense, we won’t invest (even if it’s temping at times!).
With 49% ownership of OpenAI, Microsoft is ahead of the curve. The company intends to integrate AI capabilities across all its products, including the firm’s Bing search engine. (Never heard of Bing? You will soon.) With that strategy, Microsoft intends to challenge their rival, Google, in the search engine space. While Google was once seen as the leading AI company with their AI Model BERT, ChatGPT has disrupted the market and the jury is still out on which company will ultimately benefit more. The sentiment – at least for now – favours Microsoft. But AI is in Google’s DNA, so it’s far too early to write them off.
Irrespective of who wins the AI race, companies selling the “pick and shovels”1 should reap the rewards. In the AI space, these firms include some of the semiconductor, networking, and electronic component providers. NVIDIA, a leading provider of AI enabling chips, is well positioned to benefit from the expected exponential growth of computing power. Fabrinet is another beneficiary. It manufactures connectivity equipment components that go into data centers, which are critical pieces of infrastructure needed for AI.
Consider the companies just mentioned. We bought into them long before it was evident they would benefit from AI. Those investment decisions underpin our philosophy that good quality companies and great management teams position themselves to take advantage of emerging trends.
As we gather more information and our thinking evolves, we’ll adjust our investment positions accordingly. But for now, rest assured that our U.S. holdings give you ample exposure to AI.
As for ChatGPT, if you haven’t already done so, visit the website, create an account, and prepare to be wowed.
1 A term coined during the gold rush of the 19th century, during which people selling tools that enabled others to search for gold tended to become richer than the miners themselves.
Example: Romeo and Juliette's story as experienced by Apple’s Siri and Amazon’s Alexa
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