The prospect of using artificial intelligence (AI) to drive economic growth and business profitability has captured the imagination of CEOs. In the most recent earnings season, references to AI and other related terms during calls with investors rose 77% year-on-year.
The technology stocks innovating most with AI have enjoyed a strong rally this year as the market expects this technology to transform our lives far into the future. However, the investment opportunity in artificial intelligence is not as clear-cut as some may wish it to be. As we will discuss below, there are widespread calls to slow down the pace of innovation and prioritise regulation.
AI as a driver of change in the market
The major beneficiaries globally have been the mega cap Information Technology (IT) names in the US. So far this year, almost 90% of the total return of the US index has been driven solely by seven mega cap tech names.
At Tribe, however, we have a natural underweight in mega cap tech stocks. Given the complexity of their operations and the diversification of their core products, it can be challenging to argue a material impact narrative for these businesses. Controversies are often ongoing, and it remains unclear how many of them are truly driving themselves as allies and delivery agents of the
UN Sustainable Development Goals (UN SDGs)
Given our natural underweight to these mega cap tech names, the question is, are we getting left behind? We don’t think so. We view the narrowness of the rally in technology stocks so far year-to-date as a cause for concern that masks wider worries in
Investment opportunities in AI
Indeed, our portfolios have larger exposures to the technology sector than the broader benchmark. Moreover, we believe many of the most interesting investment opportunities in the technology space can be found outside the mega cap technology segment. These include digitalisation, healthcare and resource efficiency, all of which are core investment themes for Tribe.
In terms of digitalisation, AI systems can support the analysis of vast amounts of data quickly and provide valuable insights to support accurate decision-making. This is particularly interesting for us when we consider, for example, the need for enhanced and more accurate climate modelling. The machine learning embedded in AI allows scientists to build systems that can learn and infer rules based on patterns in data faster and more accurately. Given the need to better understand the ramifications of decisions made by businesses, governments and investors, this application of AI is profoundly important.
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Likewise, in healthcare, the potential benefits of AI could revolutionise the sector. Machine learning’s ability to analyse complex and copious volumes of chemical and biological data can expedite the drug development process. AI can also help radiologists produce sharper images quicker. AI-supported doctors have now reached a point where they can yield better results when identifying illnesses and prescribing medicine. AI is at the forefront of driving a more personalised and dramatically more effective healthcare environment which is why it’s an area of interest for Tribe.
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The nexus of AI and resource efficiency plays into our portfolios’ Smart Cities and Infrastructure focus. Machine learning can help decision makers (outside of a rules-based environment) optimise a range of outcomes. From resource allocation to traffic management, energy consumption to waste management, the results can lead to more sustainable and efficient urban environments.
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The risks of fast-paced innovation
The world of AI is not without its threats. The fast pace of innovation in AI has led to nervousness in the market, specifically linked to the risk to existing business models.
Over the last month, we have seen dramatic declines in the share prices of some companies in the education space as investors fear that their business models may be structurally compromised. Whilst there has been some recovery since the initial reaction, the fear that the technology could disrupt or render obsolete entire sectors remains. While a concern, we note that 85% of jobs that will exist in 2030 don’t exist today. AI has the potential to change the way we live and work fundamentally.
A call for regulation
Regulation is critical, and much of the innovation in AI falls outside the scope of existing laws. The EU is proposing the first-ever legal framework regulating AI, citing an aim “to provide AI developers, deployers and users with clear requirements and obligations regarding specific uses of AI.” With code-driven systems already covering more than half of the world’s inhabitants in ambient information and connectivity, the benefits are substantial, but so are the threats.
The need for stricter regulation has been echoed by many experts who fear that Generative AI, or AI technology that can produce various types of content (including text, imagery, audio and synthetic data), could destabilise democracy unless governments take quick action and protect the public.
Former Chief Executive Officer and Chairman of Google, Eric Schmidt, said the intersection of AI and social media is ‘bad for democracy.’ Sam Altman, the CEO of OpenAI, which developed and now runs ChatGPT, has called for government intervention to help regulate the rapidly expanding AI systems. They are not alone; in June 2023, more than 1,000 AI experts and tech executives signed an open letter calling for a six-month pause on the development of advanced AI systems. One of them, Yoshua Bengio, who won the Turing Award in 2018, believes there is a “danger to political systems, to democracy, to the very nature of truth.”
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There are plenty of positive investment opportunities in artificial intelligence, however, the current lack of robust regulation should be a cause of concern and driver of caution. The real-world outcomes of an unregulated race to arms on AI remain outside the near-term regulatory focus. At Tribe, we will focus on the investment opportunity in sectors where the application of AI is in the pursuit of the delivery of the
UN Sustainable Development Goals (UN SDGs)
 Regulatory framework proposal on artificial intelligence, European Union