Generative AI models such as ChatGPT and Google Bard have made AI accessible to the public for the first time, which led to a surge of interest in the potential applications. Public enthusiasm for AI has been unprecedented, with ChatGPT reaching 100 million users in under two months – seven months faster than TikTok and more than two years ahead of Instagram.
The enthusiasm to talk about AI is not limited to the public. Executives across industries have used the opportunity to discuss their own AI plans. According to Bank of America, mentions of AI were up more than 85% in 2023, and seemingly every business must now have an AI strategy.
This excitement has translated into returns, too. Consider the performance of companies building large language models (LLMs) and the hardware that runs them. In the first half of 2023, the likes of Amazon, Alphabet, Meta Platforms, Nvidia and Microsoft beat all comers. This technology is the foundation on which most AI is built. The market soon recognised the important and prolific change that was underway.
However, past performance is no guarantee of future performance. As long-term investors, we need to pause and evaluate the substance behind the hype.
Here, it may be apt to remind ourselves of Amara’s law. This is the observation that, when forecasting the impact of technology, we tend to overestimate the effect in the short run and underestimate the effect in the long run.
This fits with intuition. We tend to want better, faster computers and gadgets – and want them now. History suggests that the first few generations of new technology will look antiquated within just a few years. Think of the initial versions of the iPhone.
So, applying Amara’s law, investors will do well to consider the bigger picture with AI, rather than media hype. But what is the bigger AI picture?
For starters, AI is demonstrating its ever-increasing capabilities by passing tangible tests, literally. It is passing – and excelling at – tests that no technology could until recently. For example, GPT-4 achieved a score in the top 10% of test-takers in a simulated legal bar exam. By contrast, GPT-3.5’s score was in the bottom 10%.
Secondly, AI is not just one technology. It is an approach that will power change in just about every industry, those in tech and more traditional sectors of the economy. From self-driving cars and factory robots to filmmaking and cloud computing, AI is set to be a key part of the future, not just a sector or two.
Finally, multiple sources have made impressive forecasts on the future of AI. 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.
Morgan Stanley estimates that 25% of all labour will be impacted by current AI technology. With advancements in AI, this is expected to grow to 44% in just three years. Forecasts like this speak to the product breadth and economic endurance of AI.
Is there hype? Absolutely. The question to ask is: is the excitement justified? There is compelling evidence that it is.
This sort of thinking contributes to our strategy for the Melville Douglas Global Equity Fund, whose constituent companies are positioned to play significant roles in bringing AI technology to fruition in the years to come.
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