Artificial intelligence has quickly become a hot topic at dinner tables and in corporate boardrooms. But realizing the business benefits of AI will take time. Investors should act cautiously.
The hype about the disruptive capabilities of generative AI is exploding. Since the launch of ChatGPT, the popularity of AI at Google has skyrocketed (display, left). Everyone is playing with chatbots, but AI isn’t just for entertainment and games. Ask his ChatGPT how AI will transform business, and he spews out a list of applications ranging from virtual assistants for customer support, to predictive analytics, fraud detection, to the self-driving cars and drones of the future. increase.
Companies flock to the AI party
Our analysis of earnings call transcripts shows that during the first quarter earnings season, about 20% of US and global companies talked about AI on earnings calls (display, right). Unsurprisingly, tech companies were the biggest supporters, but AI was also on the agenda in the consumer goods, finance, healthcare and industrial sectors. Not all fields are affected by that frenzy. But this revolution is just beginning.
AI requires enormous computing power, and its enablers have been the biggest winners in the stock market so far. Other companies using this technology are also exploring ways to deploy AI to solve bottlenecks and increase efficiency.
Don’t be tempted by big guys
Seeing AI enabler stocks skyrocket, investors may be seduced by visions of invisible robots that magically unlock profitability. But we believe the company needs to show, rather than explain, how his AI fits into its business model. They need to prove that their technology works reliably, is accepted by customers, improves productivity, and supports bottom line. The commoditization of AI technology can undermine its competitive advantage. And remember how many of the early dot-com darlings who promised to change the world have vanished without a trace.
Equity investors should not blindly jump on the AI bandwagon. AI is not an end in itself. It’s all about applications. The challenge is to understand how AI fits into different industries and investment themes by asking which companies benefit and what kinds of jobs are at risk. Manual, repetitive desk work that requires little innovation is fragile, but chatbots are already emerging that perform well when leveraging a fixed set of information. Forward-looking companies may use AI to improve productivity, but don’t assume that every promise about AI will yield real business benefits. Companies that experiment and fail quickly may actually find the best application sooner.
Data science can help investors begin to distinguish between strategic thinkers and propagandists. By asking the right questions as part of the foundational research process, equity investors can identify truly innovative companies that successfully integrate AI applications into their broader business strategy, ultimately improving investment returns.
