“AI is not new. Many companies have been using it for some time,” McPartlin says. “It’s just that recent advances in AI in large language models and generative AI such as ChatGPT have really caught the market’s attention.
“As to the investment implications, it’s still fair to say AI is one of the biggest tech revolutions in decades – potentially the biggest tech revolution ever – and so its impact is likely to be widespread across many industries.”
With regard to the specific industries investors should be watching, McPartlin explains that these can be broken into two categories: those benefiting directly from the technology, and those developing and enabling it.
“The AI beneficiaries can be broadly divided into two camps. On the one hand, there are the companies that will use the technology to drive a huge uplift in their own productivity, producing more with less, reducing costs while improving output, and ultimately improving their overall business model.
“In Healthcare, for example, AI could improve diagnosis, treatments and patient outcomes; it could enable more personalised treatment pathways; it could speed up drug discovery – the list goes on. Similarly, in education, AI could enable more personalised tuition, leading to better outcomes. In manufacturing, AI will make processes more efficient and less wasteful. And these are just a handful of the industries that could benefit from embracing it.
“The second camp are the companies enabling AI – the ones providing the ‘picks and shovels’ and building the required infrastructure for the massive increase in computer processing power. A good example is Nvidia which, with its dominant position in GPU chips, will be a major beneficiary alongside other computer hardware and service providers. There are lots of opportunities in both of these camps, although the former is less well recognised.”
Alongside the potential winners, McPartlin notes that AI has the potential to create game-changing competitive solutions which risk making some firms redundant.
He says, “In terms of the AI losers, there are lots of industries that may see their value proposition or competitive advantage undermined by AI. This includes content providers, software companies, business processing, staffing solutions, companies reliant on headcount, companies where a lot of the value is intangible assets, and companies slow to adopt AI that see competitors embracing the tech and taking a share.
“AI fears are already moving share prices. A few weeks ago, education tech company Chegg sold off aggressively when they reported business being disrupted by ChatGPT. Chegg effectively helps students with homework, so it has found its value proposition undermined by students finding similar answers for free via ChatGPT.”
Nevertheless, many firms are already using AI to good effect. McPartlin highlights business information provider RELX as one example.
“RELX has used AI across its business for a long time and its legal division will be a key beneficiary. It has already launched a generative AI product using a combination of private and public data and applying its private LLM. For now, the more it can drive customers’ productivity, the more it can justify charging for its services.
“As this technology rapidly evolves, we will continue to analyse AI and the sectors exposed to it, considering both its positive and negative impacts – and not just on individual businesses. As adoption becomes more widespread, the environmental impact of the huge computing power AI applications require will be a key factor to consider also.”
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