By Mark Coles, Business Development Director – Head of National Accounts, Evelyn Partners

Artificial intelligence (AI) is much more than designer robots, promising to bring automation and digitisation – and significant disruption – to multiple industries. It could deliver solutions to some of the world’s largest problems, from climate change to worsening demographics, but others see a darker side as AI grows in sophistication.

Computing power

AI requires vast computer power to store and analyse data. Governments across the world are investing in supercomputers. The UK recently entered this supercomputer arms race, with the latest budget promising £1 billion to help develop an exascale supercomputer (1.), that will have 1,000 times more speed and power than today’s most advanced computers. However, it is playing catch-up – China already has 170 supercomputers (2.).

As well as its role in a range of industries, AI could stimulate economic growth. Research from Goldman Sachs finds that generative artificial intelligence, a form of AI which generates content from simple prompts, could drive a 7% (or almost $7 trillion) increase in global GDP over the next decade. It could also lift productivity growth by 1.5% over the same time frame, presenting a compelling solution to the weak productivity growth that has held back mature economies (3.) in recent years.

Nevertheless, there is a downside. The Goldman Sachs report highlights the potential negative impacts of AI on our livelihoods across the world. It estimates that shifts in workflows triggered by these advances could expose 300 million full-time jobs to automation – equating to almost 10% of the global labour force. Certain jobs – long-distance lorry drivers, claims processors, translators – could become obsolete. Economists from Goldman Sachs estimate that roughly two-thirds of US occupations are exposed to some degree of automation by AI (3.).

AI investment opportunities

As investors, we need to accommodate these positive and negative elements. We need to assess opportunities among the growing list of companies that will participate in the growth of AI, but also avoid those companies likely to be disrupted by it. We also need to be careful on valuation. Emerging areas often attract speculative investors and quickly become expensive, leading to poor risk-adjusted returns. Just because a phenomenon is global and has a transformative impact doesn’t necessarily make it a good investment.

Instead of trying to pick winners from the increasing number of unprofitable AI start-ups, we are investing in the more established technology names. Few companies have the scale of data management and processing required to handle the growing volumes of data that are crucial to the successful deployment of AI. These incumbent mega caps are, therefore, likely to maintain their dominant positions for the foreseeable future. They also have the cash to hoover up the winners in the start-up space, as well as the resources to invest in AI research and development. Our analysts are focusing on companies that have a proven track record of innovation and delivering shareholder value.

We find it can often be more rewarding to invest in the ‘picks and shovels’ rather than the gold rush. Here, that would be areas such as semiconductors or the hardware that is necessary for AI development. These companies are unlikely to see the same boom-bust dynamics as the companies at the coal face of AI.

Artificial Intelligence is changing the world and will continue to do so. It will play a crucial role in the technological revolution we expect to see over the next decade. We want to participate in the growth of companies with proven experience in deploying new technologies, while avoiding those that face an existential threat.

For further information please contact Mark Coles

This article is solely for professional advisers and does not constitute investment advice – not for use by or for distribution to retail investors. The value of investments can go down as well as up and investors may not get back the amount invested.  Issued by Evelyn Partners Investment Management Services Limited, authorised and regulated by the Financial Conduct Authority