Humans have always developed technology to make labor more efficient, from wheels to spinning jennys, and more recently, digitalization.
These developments contribute to reducing the burden of physical labor, improving communication and automating complex production techniques. However, the impetus for the communications and digitalization revolution is disappearing, and the economy is suffering.
But AI, especially generative AI, has the hallmarks of a new technology-driven economic boom never seen before. So it's easy to see why there's so much excitement about AI among investors.
AI has been around for a while, so it partially reflects what we already know. AI innovation is already helping major technology companies achieve superior stock performance.
Generative AI uses machine learning and large-scale language models to take development to a new level. A core feature is the ability to use vast datasets to generate output far beyond the capabilities of most humans.
These artifacts could become self-driving cars that incorporate weather and traffic conditions to provide safer and more efficient travel. Or detect health problems early based on identifying patterns in large patient databases. The applications are potentially endless.
Productivity is also important. Economists suggest that AI will increase productivity, similar to past technological revolutions. This is achieved by automating tasks performed by humans across a variety of job functions.
Not only does this make these tasks faster and cheaper, but it also frees up people to be more productive elsewhere. Jobs lost to AI are very likely to be replaced by more productive and better-paying jobs.
Increased productivity means higher economic growth rates and higher standards of living, leading to higher returns to activities in various industries.
Investors need to look beyond established technologies
There are established technology companies leading the AI revolution and influencing the winners and losers through their own investments in early-stage developers. So as more applications are developed, megacap technology stocks could continue to benefit and potentially deliver superior earnings growth.
But investors need to look beyond established technologies. For AI to be transformative and improve productivity across the economy, it must improve the efficiency and profitability of businesses across the economy.
Let's look at our daily lives and consider where AI can provide better goods and services, increase work productivity, and improve living conditions. Financial services tailored to e-commerce and curated entertainment through streaming services are already common ways to benefit from AI.
So what happens when you leverage AI to manage road traffic? Or more efficient inventory and logistics to address shortages of retail goods? Improved healthcare delivery and easier access to educational resources? How about doing it like this?
Companies implementing AI should offer investors the opportunity to benefit from increased profits and increased market share. If the economy has the potential to grow faster, AI could be a potential driver of improved investment returns.
It is obvious to collect and invest assets. Investment opportunities across the entire AI value chain are clear, from semiconductor manufacturers to hardware manufacturers to cybersecurity service providers. To be able to run AI applications, there is an increasing need for powerful silicon chips, servers, networking solutions, and cloud computing.
The metaverse is also a clear area of interest, where games and other virtual reality applications can benefit from AI techniques that blend the real and virtual worlds.
Imagine the potential beneficial impact of more efficient public services and better healthcare delivery
AI has the potential to improve the world beyond purely commercial considerations and into the areas of climate change and national governance.
AI can help advance medical science and drug development. Improve crop yields and water resource management. AI will play a major role in key technologies in the fight against climate change and biodiversity loss.
Governments can leverage the opportunities of AI to deliver public services to remote or disadvantaged communities. Investors are now concerned that rising government debt levels could lead to higher taxes and cuts to the provision of public goods such as health care and education.
AI can play a role in meeting the growing public sector demands of an aging population. Imagine the potential beneficial impact of more efficient public services and better healthcare delivery, including the identification and treatment of costly diseases at an earlier stage.
Of course, there are also concerns about AI. There will be worker turnover. Possible malicious uses range from fraud to more sinister purposes. Like many other industries, AI governance is needed. However, technology has a tendency to become integrated into everyday life.
The world needs new growth engines. The effects of the end of the Cold War, China's economic miracle, and the communications revolution of the 1990s are fading. The population is aging, income inequality is widening, and the planet is facing a sustainability crisis.
Harnessing the power of machines based on thousands of years of human experience, discovery, and knowledge should be good for investors and even better for humanity.
Chris Iggo is Chief Investment Officer of Core Investments at AXA Investment Managers.
