Specifically, Musk and co warn that if regulators don’t catch up with AI systems such as ChatGPT, the machines will liquidate untold numbers of jobs, not to mention possibly flooding the world with disinformation. Phew! That’s quite the call.
It’s a bit like buy now, pay later on steroids. The technology is taking off exponentially and the regulators can’t keep up. Oh yes, and fortunes are being made through astute moves in the market.
As investors, how do we respond here? Where are the pathways towards AI-driven change that may well cause unforeseen problems but will also put a rocket under productivity in many industries?
As titan of an earlier tech generation Bill Gates put it recently, AI is as big as the creation of the personal computer in the early 1980s. “It will change the way people will look, learn, travel, get healthcare and communicate,” he said.
Investors are scrambling for ways to play the ChatGPT boom. Of course the group behind ChatGPT is private so there are no shares for anyone to buy. Instead investors are buying anything that looks like it has a lead in the area. (By the way, if you still have not tested ChatGPT, just have a look at OpenAI.com.)
If you want to see how it can move a share price, then take a look at Nvidia. Nvidia is a giant chip stock in the same league as Intel, AMD and Taiwan Semiconductor. The group has made major gains in the field of AI and is seen as the outright leader in the field.
That’s why the stock is up a stunning 80 per cent this year to date – and we are talking about a company with a market valuation of $US666bn!
Follow the money, as they say. No wonder Australian investors have been swarming in behind this AI leader. Nvidia is now the fourth most popular overseas stock traded by Australians (the first, of course, is Tesla, by a long way).
A number of leading fund managers are also in the swim. Loftus Peak is a fund manager that has on occasions been the toast of the market with some stunning results. More recently it has taken to proselytising on the wonders of AI.
In its marketing material the group said: “Most investors are aware that AI is an important transformation.
“But many still underestimate the life-changing power of this revolution and its investment potential.” No surprise that Nvidia is a key stockholding for the Loftus Peak Capital group.
As always there are smart operators who are one step ahead. In fact, it’s worth noting that Dean Grandy of KPMG issued his own warning for the Australian market before Musk.
In a report titled ‘‘Navigating AI’’ released a few days ago, KPMG said our domestic regulatory framework was inadequate for the changes coming down the line.
In reality, the regulation of AI falls between stools – somewhere between Treasury and the Department of Industry, Science and Resources. It’s what they call a regulatory gap and it’s a recipe for trouble.
Early winners
For investors the most useful aspect of the KPMG report is that it offers an investment view of the AI landscape. We are offered an early peek of how and where AI is going to make a difference.
Technology investors will already be watching keenly for any of the top tech-focused stocks on the ASX to benefit from AI – among those under consideration would be Wisetech and Appen. Other companies expected to benefit from AI-related activity include Computershare or data centre empire NextDC.
Very usefully, the KPMG report pinpoints three industry sectors where AI is expected to get the most bang for its buck in terms of productivity improvements. There are no stocks mentioned in the report but you don’t even need ChatGPT to tell you the stocks that will benefit (see the names mentioned below).
To paraphrase the report authors:
INSIDE financial services the big changes may come in an acceleration of share trading and expanded financial services. Across the insurance industry there are opportunities in the modelling of insurance risks and prices. (ANZ, CBA, NAB, Westpac, IAG and Suncorp);
WITHIN the mining sector machine learning could improve exploration activity. At the same time seismic surveys and modelling can be used to assess the stability of landscapes and reduce risks. AI technology will also accelerate the move towards self-driving mining vehicles. (BHP, Rio, Fortescue, Newmont);
HEALTHCARE may offer the richest opportunity of all with enormous potential in diagnostic services, while in biotech there is the opportunity to create efficiencies and reduce costs in the discovery of new drugs. (CSL, Ramsay, Resmed).
Perhaps the most frustrating aspect of all this for the Australian investor is that this time around, the listed action – for the moment – is largely offshore and mostly on Wall Street.
The leaders are the major tech stocks: Google with the Bard AI venture, Microsoft with OpenAI, and Facebook through its ESM Fold venture, Amazon’s Web Services and Tesla with its autonomous vehicles and robotics subsidiaries.
What do I buy?
The issue for the Australian investors is that the AI premium is still unclear in our bigger stocks. Among smaller stocks such as Appen or Bigtincan or Brainchip there is the volatility and risk that comes at this end of the market.
Meanwhile at the other end of risk there are exchange-traded funds such Betashares Global Robotics and Artificial Intelligence which gives us a very wide shot at the sector – with the usual problem of ETFs in the sense that you get the best and the worst in the field. All the same, it is no coincidence that the single biggest shareholding in this ETF is, you guessed it, Nvidia.
Who knows where this will all go? There are already Australian fund managers who now get much more work from research teams because the staff no longer listen to annual result CEO conference calls. An AI program does it for them and reports back.
Similarly, financial advisers are cutting costs by up to 90 per cent on simple advice documents using the ChatGPT program.
Unfortunately, just like the arrival of personal computers or the internet, companies that miss the boat will sack workers.
More than a third of workers are reportedly worried that AI could threaten their jobs. A major study from the University of Pennsylvania listed the jobs most exposed to AI as accountants, tax agents, legal secretaries, financial quantitative analysts and journalists.
The same survey studiously offered a score of 68 per cent for poets. When GPT gets it wrong it can get it very wrong.
But if you remember Google searches in the 1990s, they missed the mark all the time – 10 years later the progress was unbelievable. It looks like it’s going to happen all over again.
The best places to invest for income
Volatility in global financial markets has made income more valuable for investors, but what are the best options?
Buy and hold investing won’t survive the Trump 2.0 era
The smart money says Donald Trump’s protectionist policies have shattered a well-worn investing strategy.
When Elon Musk is alarmed at the pace of change in an industry, it’s time to take notice. Earlier this week, Musk and 1000 other leading lights in technology such as Steve Wozniak (co-founder of Apple) issued a warning that artificial intelligence would “outsmart and replace us” unless we stop right now.