Artificial Intelligence (AI) has quickly shifted from a futuristic buzzword to a central theme in global business discussions. Just over a year ago, the world was introduced to ChatGPT, a conversational AI that has since sparked debate, innovation, and a fair share of anxiety. As your investment partner, we believe it’s timely to reflect on what AI’s rapid rise could mean for you as an investor – especially as the headlines become harder to decipher and the stakes continue to grow.
Understanding the hype and the reality
AI is a broad term, covering everything from machine learning (where computers learn from data) to large language models (like ChatGPT) and even the more speculative idea of machines with human-like intelligence. The conversation is often dominated by three camps:
- The Naysayers: They argue that current AI models are little more than advanced autocomplete tools, generating text without real understanding. While there’s some truth to this-AI doesn’t “think” like humans do-such a view risks underestimating the pace of progress. Just as toddlers mimic language before understanding it, today’s AI may be laying the groundwork for more sophisticated capabilities in the future.
- The Doomsayers: Popular culture has long warned us about rogue machines, from HAL in 2001: A Space Odyssey to the self-aware computer in WarGames. While these are extreme scenarios, real-world risks exist. For example, AI has been used to create deepfake videos and, in one infamous case, was tasked with designing new drugs and instead generated tens of thousands of toxic compounds in hours. The lesson is clear: with great power comes great responsibility.
- The Utopians: On the other end of the spectrum, some see AI as a force for good that will drive innovation, economic growth, and solve many of humanity’s challenges. Venture capitalists and tech leaders often highlight the potential for AI to unlock new industries and create more valuable jobs, much as the industrial and digital revolutions did before.
The impact on jobs and industries
A common concern is that AI will make many jobs obsolete. Unlike previous waves of automation, which mainly affected manual labour, AI is now capable of performing tasks once thought to be safe – including white-collar roles. Recent events, such as the Hollywood Writers Guild strike, highlight that even creative professions are feeling the pressure.
However, history suggests that while new technology can disrupt existing jobs, it also creates new opportunities. The challenge is that the transition can be uneven, and the jobs created may not always replace those lost, at least not immediately or in the same industries.
Investment trends: Where is the money going?
Investment in AI is booming, with global spending expected to double to $200 billion by 2025 (Source: **Goldman Sachs Research. (2023, August 1). AI investment forecast to approach $200 billion globally by 2025).
In the US, mentions of AI in company earnings calls now rival those of “interest rates” and the “Federal Reserve”, underscoring the scale of the hype. The so-called “Magnificent Seven”, a group of dominant tech companies, have been the primary beneficiaries, with their share prices soaring as investors bet on their ability to harness AI’s potential.
Investment in AI is booming, with global spending expected to double to $200 billion by 2025.
Yet, if history is any guide, there’s often a lag between investment in new technologies and tangible productivity gains. The tech boom of the late 1990s, for example, only translated into widespread economic benefits years later. The same was true of electrification in the early 20th century, which set the stage for the economic boom of the 1920s.
Winners, losers, and the challenge of picking them
One of the biggest questions for investors is how to identify which companies will truly benefit from AI-and which are riding the wave without substance. Will we see a wave of creative destruction, with nimble newcomers disrupting established players? Or will today’s tech giants use their scale to entrench their dominance and stifle competition?
So far, the market has favoured the incumbents. Our portfolios have been underweight in these large-cap growth stocks, but we remain cautious about chasing returns in sectors that may be overhyped.
AI is a long-term trend, and there will be many more opportunities for patient investors to participate as the technology matures.
Recent breakthroughs: Progress accelerates
If you’re still sceptical about AI’s staying power, consider some of the breakthroughs announced in just the last few months:
- Explainable AI: Start-up Anthropic, backed by Google and Amazon, has developed a way to interpret the inner workings of its AI models. By grouping artificial “neurons”, they can create features that are easier to understand-potentially making AI less of a “black box”.
- Brain-Scale Computing: Western Sydney University has unveiled DeepSouth, the world’s first supercomputer capable of simulating the human brain’s complexity. With 228 trillion synaptic operations per second, it rivals our own neural networks, raising fascinating questions about the future of machine intelligence.
- AI Solving Scientific Problems: Google’s DeepMind has created FunSearch, a tool that uses AI to solve longstanding scientific challenges, generating genuinely new knowledge rather than simply repeating what’s already known.
These developments suggest that the field is not only advancing rapidly but also addressing some of its most significant challenges, such as transparency and reliability.
What does this mean for your investments?
For high net worth investors, the rise of AI presents both opportunities and risks. On the one hand, companies that successfully integrate AI into their operations could see significant gains in efficiency and profitability. On the other, the rapid pace of change means that today’s winners may not hold their lead forever, and new entrants could upend established industries.
For high net worth investors, the rise of AI presents both opportunities and risks.
Our approach remains disciplined and focused on long-term value. We avoid getting swept up in hype cycles and instead look for investments with robust fundamentals and clear growth prospects. AI is a secular trend that will unfold over years, if not decades, and we believe there will be ample opportunities to invest as the technology matures and becomes more widely adopted.
Looking ahead: Staying informed and prepared
As AI continues to evolve, we will keep monitoring developments and adjusting our strategies accordingly. The key for investors is to remain informed, flexible, and focused on the bigger picture. While it’s impossible to predict exactly how AI will reshape the business landscape, we are confident that a thoughtful, measured approach will serve our clients well.
If you have questions about how AI might impact your portfolio or would like to discuss specific opportunities, please don’t hesitate to get in touch with Mark or Sam. As always, our goal is to help you navigate change with confidence and clarity.
This article reflects our current views and is intended for informational purposes only. Please contact us for personalised advice tailored to your individual circumstances.
**Goldman Sachs Research. (2023, August 1). AI investment forecast to approach $200 billion globally by 2025. https://www.goldmansachs.com/insights/articles/ai-investment-forecast-to-approach-200-billion-globally-by-2025**