Robot revolution

Ian Cowie explains how to invest in AI.

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Might artificial intelligence (AI) one day overcome natural stupidity? How can investors, such as your humble correspondent, whose cerebral hardware dates back to the 1950s, survive the economic impact of what some experts claim is the most important new technology seen in several decades?

These are among questions raised by recent developments in AI, such as ChatGPT. This ‘generative pre-trained transformer’ program was first published last November and attracted 100 million users by January, making it the fastest-growing consumer application or ‘app’ in history.

For anyone dwelling in a candle-lit cave and relying on a quill pen, it might be worth explaining that AI in general and ChatGPT in particular involves machines that are capable of learning and can answer questions in a similar way to humans. Of course it cannot write better poetry than Shakespeare but it can perform mundane tasks more cheaply and more quickly than many less talented mortals.

This looks likely to affect large numbers of office workers in much the same way that steam engines blew away several cottage industries, such as making pottery and weaving textiles by hand. We can only hope that what the economist Joseph Schumpeter called “creative destruction” continues to produce new jobs to replace the old ones.

Coming down from the clouds of macroeconomics, investors of all sizes can take practical steps to diminish the risks inherent in this period of change and uncertainty by diversification. More positively, we can participate in the potential rewards of technology and innovation by paying professional fund managers to allocate assets in these fast-moving sectors.

Specifically, the investment companies Edinburgh Worldwide (stock market ticker: EWI), Monks (MNKS) and Scottish Mortgage (SMT) all offer globally diversified exposure to shares that might benefit from AI. Several other investment companies also stand to gain from its wealth-creating opportunities, so wide-ranging is the potential scope of this robotic new technology.

There’s no need to take my word for this. Here’s what Bill Gates, the co-founder of Microsoft said after the software giant invested $10 billion (£8 billion) in the developers of ChatGPT: “The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the Internet, and the mobile phone.

“It will change the way people work, learn, travel, get health care, and communicate with each other. Entire industries will reorient around it. Businesses will distinguish themselves by how well they use it.”

No wonder other technology giants including the iPhone-maker Apple and the cloud services provider Amazon are competing with Microsoft to monetise AI. Even Elon Musk, the Twitter owner, who initially called for a six-month moratorium on the development of AI because “human-competitive intelligence can pose profound risks to society and humanity”, is now said to be investing in his own app.

Which brings us back to how small shareholders and investors of all sizes can participate in this digital revolution. In addition to the investment companies mentioned earlier, others will also be affected by increased demand for the semiconductor chips needed to turn science fiction into commercial fact.

So, for a specific example in my modest portfolio, the investment company Polar Capital Technology (PCT) lists among its top ten holdings Microsoft, in pole position, followed by Apple, ranked second, and also the semiconductor chip-makers NVIDIA and Taiwan Semiconductor Manufacturing.

Less obviously, my most recent investment, Fidelity European (FEV), includes among its top ten holdings the Dutch business ASML that makes the extreme ultraviolet lithography machines needed to make semiconductor chips.

Even less obviously, my ninth most valuable shareholding, Worldwide Healthcare (WWH), and International Biotechnology (IBT), are both investment companies that might benefit from their underlying pharmaceutical businesses using AI to develop new drugs more cost-effectively and quickly. If that sounds improbable, then consider how unlikely it once seemed that a vaccine for the coronavirus would be found within a year of Covid crashing the global economy.

Looking further backwards and forwards, many office workers used to be employed in what were known as ‘typing pools’ before their bosses had to learn keyboard skills and more productive uses were found for everyone’s time. Similarly, telephone boxes once seemed a permanent part of many streets’ furniture before new technology rendered them obsolete.

Now the accelerating pace of AI means a wide range of digital goods and services seem set to experience their own ‘iPhone moment’ – or a step change in capabilities and consumer expectations. Nobody knows how this will turn out but investment companies enable everyone to minimise our exposure to the risks and maximise potential rewards.