Data is the New Oil, AI is the New Electricity: How Artificial Intelligence is Changing the Investment Market
Maksym Koretskiy, investor, entrepreneur and founder of Blackshield Capital Group, looks into the hardware and software giants capitalising on AI and explains how the tech could add $15.7trn to global GDP by 2030.
This article is co-authored with Ilya Kyslytskyi, Head of the Analytical Department of Blackshield Capital Group.
The dissemination of “big data” dates back a decade at most. Only a few companies have learned how to effectively work with truly big data sets, build a business around it and effectively extract useful patterns from that data. Until recently, attempts to use artificial intelligence were limited to generic machine learning models that required more human involvement and most importantly – a deep understanding of the processes within those models. Improvements in AI change a lot.
According to PricewaterhouseCoopers, AI could create an additional $15.7trn of global GDP by 2030. IDC Consulting estimates that including software, hardware, and services, the AI market could reach $900bn by 2026 at a compound annual growth rate (CAGR) of 19%.
By McKinsey estimations, AI could generate up to 1.2% of GDP growth each year by 2030.
Forecasters agree that this increase is possible due to the redistribution and optimisation of the workforce through automation, as well as product and service innovation. In the early stages of AI adaptation, its main role is to optimise labour, and in the five-year horizon, it will take advantage of the quality characteristics of AI performance and the features that personalise the outcome.
Unleashing a new era of investment opportunities
If data is the new oil, AI is the new electricity. How is this already affecting the investment market and, more importantly, what opportunities are there for investors in the future? When deciding to invest, it is important to first understand which industries and companies are the beneficiaries of AI’s “tomorrow”. First and foremost, these are companies that already have experience investing in, and applying, AI technology to their product line.
For instance, Microsoft has directly begun integrating ChatGPT into its Bing search service. Alphabet plans to integrate language models and chatbots into its search engine. Baidu intends to expand the functionality of its Emie chatbot. In hardware, the potential applications are even more exciting – using AI for distributed computing, optimising microprocessor lithography tools, creating optimal chip architectures, etc. The biggest beneficiaries are current market leaders: Nvidia, ASML, TSMC, and Arista Networks.
In software, SAP, Adobe, Palantir, and NICE Systems already have AI-based commercial products. In addition to companies with a name, there are many little-known non-public and public companies whose products logically fit the trend and have the potential to cause multiple growths. Here are a few examples: Datarobot (a company known in investment circles and engaged in machine learning for investment companies and banks), Corewave (computing power and networks), Scale AI (machine learning solutions), OpenAI (authors of the AI sensation ChatGPT), Databricks (architectural solutions in AI), and Tessian (cloud computing and email).
Besides the US, there is a similar boom in Asia, especially in Japan and China.
The direct beneficiaries are in technology and hardware. On the Internet, we see Baidu, Alibaba, and Tencent offering the strongest value products to exploit the growing capabilities of generative AI, either through standalone chatbots or/and feature integration with existing business models, in addition to meeting the growing demand for cloud services. Slightly less well-known companies in the tech sector, iFlytek, and Foxconn, are also active in this area.
To a lesser extent in Asia, companies in the corporate/industrial internet are beneficiaries, but this is still a promising industry – China’s JD.com, for example (given the impending release of ChatJD in the retail and logistics sector). Youdao should benefit from the integration of generative AI in improving educational services. Kingsoft Cloud, iQiyi, and Bilibili are also worth mentioning.
The old guard and new names set to dominate the AI market
It is important to bear in mind that the topic of AI is a hype one, and many companies, amid the developing recession and difficulties in the corporate sector, are looking to fancy their “artificial intelligence” to generate investor interest. Palantir, which specialises in software solutions for the defence sector and previously used machine learning, optical recognition, and other technologies, has recently resorted to such a stunt. But despite the temporary lull in the technology sector as a whole, the company’s mention of the use of AI caused a 25% jump in prices.
AI is the new reality and the long-term impact on asset prices is inevitable. Which risk profile would be comfortable in this investment? If an investor has been comfortable with the technology sector before, is not afraid of risk, and is not afraid of a decline in 2022, then there is multiple growth ahead, but it will only go to the patient ones.
Since it is a technology sector, the growth prospects are measured in hundreds of percent. In a declining stock market, investing at the moment may not be the ideal solution in terms of timing, but the future leaders are already taking shape – some will be from the old guard, but new names will also take off.
It is a high-risk, high-return business. We believe that this is not an area for conservative investors – their time will come later when the market matures. Right now, the main risk is that many companies will not bear the costs, make bad products, or fail to compete. Everyone remembers Nokia, which made several mistakes, did not re-adjust in time and lost the race in a highly competitive environment. It will be the same here. Someone might make a mistake.
Maksym Koretskiy is CEO of Blackshield Capital, a group of investment companies with offices in Kyiv, London, Zurich, and Dubai. He’s a financier and investor with 20+ years of experience.