Separating AI hype from investment opportunity

Amidst the considerable hype around AI and its seemingly endless possibilities, the technology’s proponents and critics alike can be prone to embellishment – making the extent of its investment potential difficult to ascertain.

‘Revolutionising’. ‘Unbiased’. ‘Productivity gains’. ‘Impersonal’. ‘Unethical’. ‘Make humans obsolete’. All these and more have been attributed to artificial intelligence. Perhaps with the exception of social media, few technologies are so polarising in modern society. Beneath the marketing puffery and critical naysaying though are potentially lucrative returns on investment for businesses and individuals. Like all investments, a balanced approach is crucial to success – considering all sides, weighing various potential outcomes, and then parking money where it is strategically most valuable.

The opportunities 

Opportunities to derive investment returns from AI, as they stand today, can generally be grouped into four main areas:

• Direct investment: Technological development requires capital, and lots of it. Investing in a booming innovation can deliver substantial gains, whether that be into high-growth start-ups or established tech giants building AI platforms.
• Third parties: AI draws on an array of related technologies and infrastructure, creating scope to diversify into ancillary channels – e.g. cloud computing, autonomous vehicles, semiconductors.
• Leveraging productivity gains: Companies across a diverse range of industries are embracing AI – e.g. ecommerce chatbots, agricultural drone surveillance, advanced manufacturing plants. Hence cashing in on AI needn’t involve directly funding its developers. For instance, Boston Consulting Group has written extensively about AI-generated productivity gains within the healthcare industry, from improved patient administration in hospitals to increased success rates in pharmaceutical clinical studies.
• Personal uptake: Embracing AI to improve productivity and performance in incoming-generating employment could drive income growth and career advancement. Or it could be used to formulate personal investment plans, household budgets etc. This could be as simple as asking ChatGPT to generate weekly meal plans within a particular price point, or having it compare and summarise ASX reports of multiple stocks to help guide investment decisions.

The practicalities 

When assessing any investment opportunity, it is important to factor in individual risk appetite and assess the contextual realities that will impact upon its financial performance in the years to come. Looking at AI, the foreseeable realities are rapidly evolving – a furtive ground for uncertainty and hence risk. Among them are:

• Regulation: Given the relative infancy of AI, future government regulation and oversight is a surety, yet what form it takes is anything but. Potential incongruencies between local and international regulations, such as the European Union’s new AI Act, and the effects this could have on globalised supply chains, further muddy the waters.
• Geopolitical climate: We’ve seen how political tensions and fears of covert surveillance have seen the US look to ban Chinese-owned social media platform TikTok. AI could easily become the next frontier.
• Ethics: The use and abuse of AI (such as its role in scams and deepfake images) and job losses as it usurps human skills already shape public perceptions of the technology. Its continued evolution and uptake will probably increasingly impact (positively and negatively) on brand value and consumer/employee behaviour for those using it. Take for instance facial recognition technology in retail stores and supermarkets: is it a tool that can be leveraged to enhance customer experience and improve staff safety? An invasion of privacy and data security risk? Or both?
• Accuracy: While technology is designed to eliminate human error, it has its own limitations and isn’t flawlessly accurate. One need only look at weather models for this past summer – forecasts of hot and dry conditions gave way to significant flood events across much of Australia. Or the multiple instances of case law citations generated by AI, which turned out to be fake, having gone before judicial courts in the US.

The verdict 

Weighing up both sides demonstrates that there may be substantial scope for investors to capitalise on AI, deriving healthy financial returns in years to come. Yet it is not a guaranteed cash cow, nor should it be used to outsource investment decisions. Whether AI is being considered as an investment option in its own right, another tool in formulating investment strategies, or both – or even neither – commonsense, diligent research and a qualified plan remain the pillars of building wealth.

Written by Helen Baker.

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