Clarke says the old adage about big technological breakthroughs – that their effects are over-estimated in the short term and under-estimated in the long term – is apt for AI, and that diligent investors shouldn’t be discouraged by the current frenzy.
He says, “Clearly there is short-term hype around AI, but it’s not without a solid foundation. On the one hand, there are viable uses for this technology to a degree which has been lacking from other recent fads such as crypto and the metaverse. On the other, it remains impossible to predict at this stage exactly where AI will take us. This is an attractive combination.
“To put it into perspective, it’s 16 years since the launch of the iPhone – it immediately caused a stir and yet very few people were able to envisage the depth of possibilities it would later unlock at the outset of its evolution. AI will likely be similar.”
Clarke believes there is significant potential for economy-changing developments to be driven by AI – but with that potential comes significant risks, particularly as the current “hype cycle” persists.
“There is huge potential for business models to be revolutionised and economies to be re-profiled as a result of AI innovation,” he says. “But these things take time and are often painful processes, which may introduce a political element to future developments too.
“Overall, I wouldn't be surprised if we go through a period of hype, then a period where it feels like momentum has slowed and things aren't living up to original expectations, only then for the new wave of Facebooks, Googles and other powerhouses to emerge in the mid-term.”
Commenting on sectors exposed to AI disruption, Clarke notes that there will be both winners and losers, with any sectors related to content generation looking particularly vulnerable.
He says, “The music industry, images, journalism, films and TV could all be exposed here. There may even be implications in my own industry in terms of the way I access external research and write investment notes. However, in the longer-term, we should also think about content in a wider sense. For example, AI is proving itself adept at writing computer code – a specialist skill that relatively few people possess right now. This could have significant ramifications for the software industry.”
For investors considering the theme, Clarke says an obvious and well-trodden opportunity is Nvidia, which has positioned itself precisely for the current market dynamic, but there are many other companies which also present strong investment cases.
“The most obvious way to play the theme is through Nvidia. The company has been positioning itself for a new era in computing for around a decade and has established a position as the only 'ecosystem' player, similar to the position Apple holds with the iPhone in the mobile market.
“Networking companies such as Broadcom and Marvell also look well placed to benefit from AI disruption. They provide the technology behind linking servers in datacentres, making the backbone of our telecoms network fast and resilient enough to deal with the increasing volume of data.
“Separately, there is definitely some concern around copyright and how owners of original content are rewarded. Doubtless, business models will emerge that try to meet this need. Adobe is an example of a company already trying to help owners of original content tag it and stop it from being used within AI training models.
“Moving further up the tech stack, it looks likely that Amazon's AWS, Microsoft's Azure and Alphabet's GCP remain incredibly important in being the data-centre layer by which many of us will access these AI services. They will probably have to re-architect their datacentres, and there's a potential risk if any of them don't react fast enough, but they seem safe for now.”
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