Over the past few weeks, we’ve been sharing how we’re looking at the ever-expanding universe of artificial intelligence – largely based on our experiences of a decade in robotics and automation.
We explored why the initial hype may subside before adoption really starts to take hold, and why the most exciting breakthroughs sometimes come from the least obvious of applications. We’ve also observed that while big tech incumbents are expected to drive innovation in the short-term, this shall pave the way for small company success stories in the medium-term.
Certainly, the field of AI has been an exciting place to be for investors in 2023. And perhaps unsurprisingly we expect similar spikes in enthusiasm in the months and years ahead, as new innovations akin to ChatGPT make headlines and grab the attention of the public.
There will also be periods where seemingly very little progress happens, or where potential roadblocks emerge. Nonetheless, one has to keep in mind the exponential nature of developments in the field – as illustrated in an excellent chart by Our World in Data, which maps the rise of AI over eight decades.
In a very dynamic and rapidly evolving investment opportunity set, investors have the challenge and the opportunity of identifying the long-term winners early on but, more importantly, avoiding ‘over-hyped’ areas of the market that could be materially detrimental to performance (a distinction not offered via passive exposure of course).
It is likely that the winning strategies of tomorrow will be those that maintain consistent and long-term exposure to the most attractive opportunities in the universe, while also adopting a strict valuation discipline to help smooth the inevitable ups and downs along the way.
Indeed, we believe that the true value lies in the enablers of artificial intelligence rather than the adopters, for these are the companies that are poised to benefit from the continued exponential advancements in the field that we’ve witnessed since the 1940s[1].
And, in addition to using the last decade of robotics and automation as a lens to look at what the future might hold for AI, combining these two areas can present a novel opportunity-set for investors. One that not only balances two fields at different stages of their development and adoption (as well as with different cyclicality and valuations) but two fields with a myriad of mutual and self-reinforcing benefits.
Just ask IBM. On 28 August 2023, the firm launched a new advertising campaign reintroducing their Jeopardy-winning supercomputer under the new name: Watsonx.ai. It was dubbed a “next generation enterprise studio for AI builders”. Included in its package were “selected open-source models” from Hugging Face[2] – who just might help the tech giant’s Watson see further this time around.
Karen Kharmandarian and Alexandre Zilliox are portfolio managers at Thematics AM, an affiliate of Natixis Investment Managers
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