By Thomas O. Herrick
Chief Investment Officer, Managing Director
Most people’s impression of Artificial Intelligence, commonly referred to as AI, is ChatGPT, but it’s much more. ChatGPT has popularized AI conversation as it is a consumer-facing chatbot that launched last November. The widespread adoption of AI will have profound economic and societal implications. At its core, generative AI works by taking large data sets of text, code and images that it is trained on to develop new text, images, and media based on patterns learned from those data sets. Examples of AI use cases being any one of the hundreds of drugs currently under development utilizing AI.
Artificial Intelligence is perhaps the most overhyped conversation short-term, while being the most underhyped conversation long-term. This innovation has the potential to create one of those technological great leaps forward similar to the three previous industrial revolutions. The impact on global GDP could be a figure around $4.4 trillion annually, and the corresponding impact on corporate profits could be enormous. This has the potential to be a very powerful long-term trend supporting equity prices.
Widespread adoption of AI will have profound economic and societal implications.
The productivity boost inherent in technological breakthroughs such as this is hard to underestimate. Generative AI lends itself to human-facing apps and will be deployed as a “co-pilot,” improving the efficiency of workers and consumers. Just a few of the ways that AI will be used in the workplace: pattern & image recognition for tumor detection; text generation and summary for sentence completion, autocorrect, and legal document summarization; data analysis and prediction for autonomous driving, and warehouse logistics. Generative AI is estimated to add more than 1% annually to productivity in the decade following its widespread usage. From an employment perspective, salary growth will be strongest as employers seek candidates with Artificial Intelligence skills.
Source: The Wall Street Journal
That boost to productivity feeds directly into increased GDP at a very opportune time, given demographic challenges faced by economies ranging from the U.S. and Europe to Asia. Population growth is falling in much of the world, and that trend is going to accelerate dramatically in countries such as China and South Korea. We are very early in this dynamic, but measurable returns on investment and improvements in efficiency that early adopters have seen give us confidence that AI is a long-duration secular trend. From an industry perspective, estimates are that generative AI is likely to have its biggest impact in financial services, high tech, and life sciences as a percentage of overall industry revenue. Early winners in the chip sector, such as Nvidia, continue to see huge demand for AI-related chips. Long-term AI-related investment could peak as high as 2.5 to 4% of U.S. GDP and 1.5 to 2.5% of GDP in other major economies.
Source: Edgewood Management LLC
Source: Stanford Institute for Human-Centered Artificial Intelligence, Goldman Sachs Research
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