As Cisco’s recent $1bn fund for artificial intelligence (AI) start-ups suggests, AI is no longer a distant future but an imminent reality shaping our present. This move also reflects a broader trend of growing investments in AI. As more investors explore tapping into AI’s potential, the biggest caution is to ensure that they are properly weighing the hype against the risks.
Initially operating behind the scenes, AI has transitioned from a concept predominantly explored in academic and research settings to a transformative force in the real world, influencing everything from personalised recommendations to autonomous driving, factory robots, filmmaking and cloud computing. While the uses of AI are still being debated and formed, the widespread consensus is that AI will have a profound impact across all sectors, including the investments landscape.
According to the Bank of America, mentions of AI were up more than 85% in 2023, and seemingly every business must now have an AI strategy. Amazon, Alphabet, Meta Platforms, Nvidia and Microsoft have beat all comers as companies building large language models (LLMs) and the hardware that runs them continue to attract attention and hype.
It is also not much of a surprise that Morgan Stanley estimates that 25% of all labour will be affected by AI technology. With advancements in AI, this is expected to grow to 44% in just three years. One recent study by the McKinsey Global Institute found that AI could boost global GDP by up to $13-trillion by 2030. An additional 1.2% of global GDP per year. The equivalent of adding a UK-size economy every two years.
The most significant recent development in AI is the advent of generative AI. This technology has captured the world’s imagination by demonstrating the power and versatility of AI across numerous applications. The ability of generative AI to produce coherent and contextually relevant text has led to applications such as generating articles, stories and scripts for movies and TV series. These capabilities illustrate AI’s profound impact and the myriad possibilities it offers.
The investment landscape for AI is vibrant, with significant funds like Cisco’s $1bn allocation underscoring the sector’s appeal. Billions more have been committed to developing foundational AI models, creating multiple billion-dollar companies. These investments, often funnelled into training compute, have propelled Nvidia to a market cap of more than $3-trillion, making it the second-largest company in the world. Microsoft, which has itself been ploughing billions into AI compute, appears to be leading the pack.
Various industries, including health care, finance, and transportation, are seeing substantial AI investments, each aiming to leverage the technology’s transformative potential.
Yet, despite the optimism, there are critical challenges to consider. Overestimating AI’s capabilities can lead to unrealistic expectations and potential disillusionment. Ethical issues, such as algorithmic bias, and the need for robust regulatory frameworks, are pressing concerns. Furthermore, the potential for job displacement necessitates a focus on reskilling and workforce adaptation.
The rise of deep fakes, human manipulation, and related risks underscore the darker side of AI. These technologies can be misused, leading to significant societal harm if not properly managed and regulated.
Overestimating AI’s capabilities can lead to unrealistic expectations and potential disillusionment
The key consideration for investors is to look for evidence that the current excitement about AI is translating into tangible returns. While there are notable success stories, such as AI-driven advancements in health-care diagnostics, there are also instances where investments have not met expectations, highlighting the need for cautious optimism and thorough due diligence.
It is impossible to predict with certainty who the ultimate winners and losers in the AI race will be. However, it is clear that staying out of the race altogether is not an option for those seeking to capitalise on the next wave of technological innovation.
As we navigate this evolving field, a balanced perspective is essential. Investors must weigh the promises of innovation and efficiency against the ethical and practical hurdles. It is notable as well that AI is getting better all the time and we need to stay in tune with its rapid progress.
Looking ahead, the future of AI investments will likely hinge on continued technological advancements, regulatory developments, and the ability to address societal impacts thoughtfully. We believe investors should see the bigger picture to understand how they can benefit. It is not just about the hype.
• Frasco is chief investment officer of INN8 Invest, a division of STANLIB Wealth Management (Pty) Ltd.
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