Originally published by Open Markets
If you don’t remember it from comics or TV, you may have noticed the recent deluge of headlines featuring artificial intelligence (AI) – the good, the bad, the downright scary. Frighteners are not new – there has, after all, been 36 seasons of Dr Who during which 12 doctors have drawn on ‘good’ forces to battle daleks, cyborgs and other AI driven creatures hellbent on destruction.
It’s a concept that is at once exciting and frightening.
In Elon Musk’s words:
“… AI is far more dangerous than nukes, by far. So, why do we have no regulatory oversight? This is insane.”
The late, great Stephen Hawking shared this parable about AI:
“There's a story that scientists built an intelligent computer. The first question they asked it was: "Is there a god?" The computer replies: "There is now." And a bolt of lightning struck the plug so it couldn't be turned off.”
AI – the next wave of destruction, the way of the future, or an unmissable investment opportunity?
What is AI?
At its most basic, AI is the action of taking volumes of data and plugging it into a ‘big computer’ to give the user a predictive outcome that enhances their experience. Remember all that talk about ‘big data’ a couple of years ago? Well, AI and its applications is why big data had so many people all excited.
Although data in some form has been collected for years, the technical capacity to store, analyse and use the data is more recent. We’ve come a long way from the floppy discs of the 80s to the now almost infinite cloud. A long way from computers with 4GB of memory and using CD burners to back up photos and important data. Data storage is cheaper and, thanks to improvements in internet bandwidth, the ability to analyse, manipulate and use that data has grown exponentially.
AI is widely used by online advertising platforms – whether based on your searches, demographics or location, relevant advertising pops up everywhere – on your favourite news site, in your Facebook (NASDAQ:FB) feed, in Google (NASDAQ:GOOGL) AdWords on just about any site you look at.
Other basic examples include:
- Predictive shopping results – you read this book, here are several more you might like…you streamed that song, try these.
- Google maps highlights the time your next trip will take, before you ask for it.
- Facial recognition – while everyday use includes social media photo tags and signing into iPhone X, the applications for security are innumerable.
AI will impact most businesses. As highlighted by the recent fracas surrounding Facebook and Cambridge Analytica, in which it’s estimated 87 million users’ data was accessed, the ability for AI and data to provide advertisers, businesses and other interested parties (such as political parties) with consumer insights is invaluable.
AI versus machine learning
Whilst machine learning is a term often used interchangeably with artificial intelligence, they are not the same. AI results in machines being able to carry out tasks in a ‘clever’ way, while machine learning takes AI to the next level...give machines access to the data and let them learn for themselves!
A topical example is the driverless car. While AI enables the car to drive itself and find its way around, the ability for the computer driving the car to learn will, in time, make it a safe, viable form of transport. Well, that’s the plan, although the recent incident involving a woman being skittled by her Uber has understandably set the cause of the driverless car back a year or three.
AI enables the clever programmer to build a computer than can play – and beat – a human at chess. Machine learning allows that computer to think for itself and play moves it learns from games, rather than moves pre-programmed by humans. The machine that learns is the machine of Hawkins’ dystopian future.
The investment thesis
So, what does all this have to do with investment?
Firstly, the numerous ways AI will impact the competitive environment. From robots that work side-by-side with human workers on a factory floor, to chatbots that provide customer service and sales support. From the 45,000+ robots providing fulfilment services in Amazon (NASDAQ:AMZN) warehouses, to computers that not only sort data, but also analyse it.
Secondly, the provision of financial services. Consider robo-advice – although humans select the underlying investment portfolio, the path that leads the investor to the applicable portfolio for their risk profile is generally premised on a form of AI. Some robo-advice firms may use chatbots to provide support for clients, although in Australia, most use humans.
In funds management, particularly quant strategies, the use of algorithms and AI models to identify investments and implement trading strategies, such as high-frequency trading, is proving popular. Consider those managers tasked with interpreting reams of information in a myriad of sectors across multiple markets – AI can do in seconds that which once took human analysts hours.
There’s even an ETF or two based on the AI thematic. In Australia, ETF Securities offers ROBO (AX:ROBO), an ETF that tracks the performance of the ROBO Global® Robotics and Automation Index, which is comprised of robotics, automation and artificial intelligence related companies.
Investors can look to the enormous number of businesses set to benefit from AI. This may include those companies implementing AI into their business model, or those that facilitate it, such as the data collectors. Data fuels AI and any business that owns a large dataset is well placed – just look at Facebook, Google, Amazon et al. Any business that collects data should benefit from this trend. Companies that build the technology, or supply components, should likewise benefit.
Forty-two
Disruptive technological change will impact every business and, like most disruptive technology, AI will spawn new industries and revive others. And yes, it could be the death of those reluctant or unable to change.
Each industry and company should be assessed in light of the potential for disruption by AI, even those businesses that have been successfully operating for many years. Remember Kodak? It was the world’s most well known and successful film brand, now used as a warning to businesses that fail to recognise change and act accordingly. Understanding the potential impact of technology, particularly AI, will become increasingly important when assessing investment opportunities.
So, to 42. It’s the meaning of life of course, as calculated by Deep Thought, the largest computer ever built. It took 7.5 million years to ruminate on the question before spitting out its answer. And yes, it’s a fictional computer. However, when I posed the same question to three AI driven devices – Apple’s SIRI, Amazon’s Alexa and Google’s Home – two out of three gave me the same response. So, is 42 the meaning of life according to artificial intelligence, or are the programmers of these AI devices Douglas Adams fans?