Market Comment - Smart advances in artificial intelligence

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The US has announced that it is prioritising artificial intelligence research. This comes as adoption of the technology is spreading and moving out of labs and into business models. Piet Schimmel, ABN AMRO Equity Thematic Expert, believes the development of AI offers investment opportunities. This is especially true as companies continue to invest in the technology.

“Artificial Intelligence (AI) promises to drive growth of the US economy, enhance our economic and national security, and improve our quality of life,” so reads last week’s Executive Order from Donald Trump. It defines a range of activities designed to build the US’s capability and adoption of artificial intelligence technology.

Artificial intelligence includes a range of technologies that, in general, imitate human intelligence. Applications include facial recognition, language processing and expert reasoning. As Schimmel notes, “With traditional software, the logic governing processes is predefined. AI, on the other hand, discovers patterns and continually improves processes.”

AI, for example is behind the computer model that challenges and wins chess matches against grand masters. “The latest computer winner,” says Schimmel, “basically taught itself. There was no training from human chess experts. Instead, the computer model developed expertise purely by playing millions of times against itself, powered by new ‘deep-learning’ techniques.”

Rapid adoption of AI is underway

While AI has been under development since at least 1956, Schimmel says that it has now reached an inflection point of rapid adoption in many businesses. He says that this has been driven by the exponential growth in data, the advent of cloud computing and innovations in AI itself. “As these three advances feed off each other, more and more companies are finding innovative ways to use AI.”

“In general, we see AI applications capable of supporting a range of key business goals,” says Schimmel. “This includes increasing sales, building customer engagement, improving operational efficiency and driving down costs.” As examples, he notes large web retailers that use AI to suggest further purchases to internet shoppers. And a large home entertainment streaming company with an AI model that suggests viewing options to subscribers, based on their past viewing history and other metrics. One large German e-commerce retailer successfully uses AI to predict what customers will buy. This advancement has enabled the company to cut surplus stock and has significantly reduced product returns.

Investment opportunities around AI

Schimmel sees opportunities for investors related to the growth and development of AI -- especially among the companies that enable its development. “We like the big online platforms that are offering cloud computing and AI applications,” he says. Another segment he favours are specific enterprise software vendors that offer AI tooling to their corporate customers. “These companies are already present in the heart of the IT systems of many of their clients and understand what these businesses require.”

As for Donald Trump’s executive order and the belief that AI can drive economic growth – Schimmel agrees. “There is research by PwC,” he says, “that forecasts AI has the potential to boost global GDP by up to 14% by 2030. Companies that can adopt and maximise this technology in their business models will likely set the stage for growth – even in an environment where there are indications that global macroeconomic growth is slowing. The latest earnings season has shown that companies continue to make capital investments in AI, which bodes well for companies able to move AI applications out of the lab and into business models.”

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