25.09.2020
Artificial Intelligence, or AI, is a term that has been around since 1955, but has more recently moved from the realms of science fiction into factories, offices and living rooms. We believe it could be the most important technological advance over the next decade in terms of its impact on our lives. In this article we will look at what AI means and how we believe investors could benefit from the opportunities it presents.
WHAT IS AI?
The cofounders of MIT’s AI laboratory in the late 1950s, John McCarthy and Marvin Minsky, described artificial intelligence as “any task performed by a program or a machine that, if a human carried out the same activity, we would say the human had to apply intelligence to accomplish the task.” Effectively it is technology that enables a computer to think or act in a more “human” way. It does this by taking in information from its surroundings, and deciding its response based on what it learns or senses.
WHY IS AI IMPORTANT?
Most of us will have already experienced some of the benefits of AI in our everyday life, whether through seeing recommended products when shopping online or streaming movies, interacting by voice with smart devices or engaging with customer service chatbots online. But the potential benefits stretch much further than just consumers. In industry, AI is being used to increase automation of factories, reduce wastage of materials and improve energy efficiency. In the public sector, AI will be used to improve public safety, manage traffic flows and improve public healthcare systems. And looking further ahead, perhaps one of the most transformational uses of AI will be in creating truly autonomous vehicles, which will not only drastically improve traffic safety, but also free up significant amounts of time.
HOW IS AI CREATED?
AI is typically created through machine learning. AI software learns by processing massive amounts of previously collected data to find a complex hierarchy of patterns that can predict what to do when a similar situation arises. AI can learn new skills through examples, trial and error, or adapting skills from similar tasks. For instance, an AI system may take data such as temperature and tolerance information from sensors on a piece of manufacturing equipment and draw conclusions about its condition, by searching that data for trends, patterns, and anomalies. As a result, the ML system may conclude that a machine may need maintenance to prevent failure. Importantly, it gets better with time, as it learns to draw better insights as it gathers more data.
WHAT ARE THE INVESTMENT OPPORTUNITIES?
The investment opportunities from AI are going to be across multiple different sectors and businesses. But we think one of the most direct plays is through the semiconductor industry. Although the concept of AI has been around for 65 years, it is only in recent years that we have been able to build powerful enough computers to process and learn from the huge amounts of data necessary to create advanced AI systems. The primary enabler of this has been the explosion in parallel computing power through the use of GPU clusters to train machine learning systems. At the forefront of this has been NVIDIA, a company that has spent the past decade building out a hardware and software ecosystem that puts it at the forefront of systems to be used in the development of AI. We believe that this gives it a significant competitive advantage that will position it to benefit from strong growth in AI as discussed above, as well as the trend towards greater AI proliferation outside of the data centre, in the billions of connected devices that will be present in our daily lives, across industry and infrastructure and consumers, as part of the “Internet of Things”.
This note has been produced by Killik & Co on the basis of publicly available information, and all sources are believed to be reliable, but we have not independently verified such information and we do not give any warranty as to its accuracy. Some of the stocks mentioned in this note are covered by Killik & Co’s Equity Research team and others are not. The mentioning of the stocks does not represent a recommendation to buy or sell any securities, and the note is intended as a marketing communication rather than research. This note does not purport to be a complete description of the securities, markets or developments referred to in the material. All expressions of opinion are subject to change without notice. Nothing in this note should be construed as investment advice or as comment on the suitability of any investment or investment service. Prospective investors should take advice from a professional adviser before making any investment decisions. There are risks with almost every investment that you may not get back the original capital invested. The value of your investments may fall as well as rise and the past performance of investments is not a guide to future performance.
