The benefits accruing from advances in Artificial Intelligence (AI) may take years to become apparent to wider society, and the companies that prove to be the best investments in this theme may not even have been founded yet, according to Felix Ambrust, who runs an AI fund at DWS.
He said the history of technological advances is that their long-term benefit is not immediately apparent to society, but obvious much later.
But he said the key to understanding the scale of the potential impact of AI on the world is that it is what he calls “general purpose” technology, menaing that when the impact of this technology becomes apparent, it if felt across a very wide slug of the economy.
Richard Saldanha, global equity fund manager at Aviva Investors, says: “The runway here is enormous, not just in terms of AI, but also in life sciences and pharma generally.
We have seen the innovations around ChatGPT, but also recently, some innovations around anti-obesity drugs. These are very long-term trends and they aren’t particularly linked to GDP growth.”
Amrust contrasted the long-term nature of the opportunity, and the uncertainties inherent in this, with the level of short-term prediction which occurs in markets and the media.
He said: “Currently, there are only a few and very experienced companies developing and deploying AI models profitably in their product suite.
"However, the majority of companies are just getting started with AI and future AI winners might not even have been founded. As with any other product, not all market participants will develop profitable products.”
Turning his thoughts to what is priced into the market right now, he said the Nasdaq index of technology shares, which began to rise sharply in May following an increase in the levels of awareness of the potential of AI, he said the current price to earnings ratio, at 35, is above the historic average for the market.
But he said this is considerably below the 110 times price to earnings ratio reached just prior to the dot com boom at the turn of the century.
This is a point taken up by Kirsty Gibson, who works on the US equity desk at Baillie Gifford.
She was commenting in the context of the results of the Baillie Gifford US Growth investment trust, which seeks to own innovative companies, but which has underperformed relative to its benchmark over the past five years.
In the annual results of the trust, the US equity team wrote: “Patience is key: the most impactful innovations may lie dormant until the environment is right for them to flourish. A great number of innovations arrive before their time. Dormancy can result from inertia, powerful incumbency, and resistance to change.
"Idea creation is the easy task; creating success is where the hard work begins. Disturbance creates opportunities for innovation because it enables heterogeneity. It opens the possibility of alternative landscapes and new ways of doing things. As the pull toward convention and homogeneity continues, disturbance can create lasting transformations that enable exuberant growth and progress.”
