Technology has quickly made significant advances. Thanks to new training techniques, the answers seem to be more precise and more relevant.
This summer, many American Tech stocks saw their prices fall. Many market players seem increasingly skeptical about the significant investments in artificial intelligence (AI).
But despite the price losses suffered recently, the Nasdaq index, with its strong technological dominance, has progressed considerably this year. This is partly due to high expectations for artificial intelligence. However, more and more investors are wondering whether this technology has not raised too high hopes.
Derek Glynn, portfolio manager at BNP Paribas Asset Management, does not share these doubts. He says, speaking of generative AI: “I am convinced that it can lead to more economic innovation and productivity, and this belief has strengthened over time.”
Technology has quickly made significant advances. Thanks to new training techniques, the answers seem to be more precise and more relevant. Furthermore, users interact better and better with models, which improves their performance.
Derek Glynn is already seeing signs of the productivity benefits that AI can bring to the economy. “Software developers, for example, can use generative AI tools to help them write code.” Given that economic successes owe an increasingly important part to the contribution of software, productivity gains made in this area also tend to have a more than proportional impact. “In terms of readiness to welcome this new technology, we observe that a growing number of companies are interested in this tool. This is true even in highly regulated sectors that manage sensitive data, for example financial services and health.”
The rise of AI is not comparable to the Internet bubble
Given the growing interest in AI technologies, large providers of cloud services are planning significant investments in order to be able to make the necessary computing power available. “Some market participants are concerned that this could result in a waste of capital. Pessimists even go so far as to draw comparisons with the dotcom era of the late 90s and early 2000s, which ended with the bursting of the dot-com bubble,” notes Derek Glynn. However, he does not believe that this analogy is valid and points to important differences: “First of all, many of today’s mega-cap technology stocks already have a solid primary activity that allows them to generate a flow of significant cash flow. In addition, they generally have robust balance sheets with good liquidity reserves.” They could therefore relatively well bear the weight of the planned investments. The portfolio manager expects an overall positive return on investment, although he believes it is likely that there will be differences between the various companies.
In addition to cloud services, Derek Glynn sees many other sectors benefiting from massive investments in AI. “Among the top winners are companies that manufacture semiconductors and equipment for semiconductor production. Without them, this technology would not be possible,” explains the portfolio manager. But there are also opportunities available to companies in sectors other than Tech. They could earn money by participating in the development of data centers. Derek Glynn cites examples: “Industrial companies that offer cooling solutions could be one of these, as could companies in the renewable energy sector. Because many digital service providers are required to comply with the “Net Zero” objective.”
Cybersecurity companies could also benefit. “We must protect powerful new AI tools against cyber attacks,” notes the expert. “An interesting area is machine authentication, as AI models will act increasingly autonomously, while interacting with each other.”
On the other hand, Derek Glynn advises to be cautious about companies which do not adapt quickly enough and which could therefore be pushed out of the market. For some software companies, competition could intensify – particularly if they do not have their own data or if other factors make it more difficult for new players to enter this market segment.
In different fields, AI will soon be the norm
In other sectors, AI applications will soon become standard uses. This is what the portfolio manager expects in online trading, for example. “AI capabilities will not necessarily allow businesses to stand out from the competition. It’s only a matter of time before every major e-commerce site has an AI-based co-pilot, who will help consumers shop and find the items they want, also responding to their questions. But it will not necessarily be monetizable through an expansion of existing activities.”
For future developments, Derek Glynn expects more clarity in terms of AI-related regulations and greater attention to the issue of risks. “There is still much to be done in areas such as copyright, data security and privacy, disinformation and securing AI in general.”
