We are at the start of a new technological age, which is being driven by the increasing power and cognification of artificial intelligence (AI), a powerful technology that has the potential to transform our world quickly and decisively.
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Everything we have achieved as a civilisation is the product of our intelligence, and if we are able to augment our intelligence with artificial intelligence, we will be better placed to address some of our greatest challenges.
AI is a technology that is already having a profound impact on many business models, creating incredible return potential and some of the greatest barriers-to-entry ever seen for those companies that are able to embrace it. While there will be many great opportunities borne from AI, it might also cause creative destruction to some traditional business models. High street retail has been an early victim of this technological transition, as the power of individually targeted ecommerce continues to drive footfall away from physical stores. Transport is also seeing the beginning of this disruption, where the brand value of the world’s largest car manufacturers becomes a lot less certain in an era of ‘autonomous taxis’.
For many, the future vision of AI is often defined by the action movies of the 1980s. However, a super-smart, humanoid T-1000 that will threaten our job security is unlikely to be the path that AI follows. Instead, AI will likely be closer to our experience of the internet – an ever-present, unobservable power that we can tap into to make things smarter. The power of network effects will likely drive AI into a handful of key providers – namely the tech giants – who will see their respective AIs become increasingly powerful and useful, as more users access them and feed them data. AI is seen as a core pillar of future growth for companies such as Amazon and Microsoft, who are increasingly providing artificial cognification to their customers by, for example, ensuring customer service optimisation and predicting what products are most likely to sell.
Over the coming years, AI will drive change across all aspects of our lives, from healthcare, to energy efficiency to how we feed ourselves. When DeepMind’s AlphaZero achieved a superhuman level of play for the game ‘Go’ within 24 hours in 2017, it did so solely through self-play and without any access to historic data from human games. Left to its own reinforced learning, it was possible to see the program self-learn strategies that humans had developed centuries before. After beating all human players, the program continued to learn and developed new alien strategies that no human had yet considered – improving human understanding in the process. This is the power of AI. Not in its threat of replacing humans, but in its ability to do things humans cannot, and this provides exciting opportunities for both investors and the planet.
One of the fastest moving areas of AI development is in deep learning neural networks. These deep networks attempt to mimic the actions of neurons in the brain, which are able to unconsciously, instantly and astoundingly interpret the world around us; such as reading someone’s handwriting or the expression on a face. Visual recognition is extremely difficult to do, however deep learning neural networks are increasingly able to use these principles to take unstructured data and interpret it more effectively than humans. This may be in Facebook recognising your friends in a photo, in the identification of a tumour in a mammogram, or in reducing the energy footprint of a data centre.
Perhaps one of the most exciting areas in which AI can enable tangible benefits is in healthcare. Back in May last year, Grail, a healthcare company based in Silicon Valley’s Menlo Park, was granted Breakthrough Status by the US Food and Drug Administration for its early detection, multi-cancer blood test. The test detects very early stage cancers by combining high-intensity genomic sequencing of a patient’s blood with artificial intelligence algorithms and large data sets in the cloud. Data from their clinical research programme showed that the test was able to detect a strong signal for 12 deadly early-stage cancer types. This impressive technology, which can boast the investment backing of tech heavyweights such as Amazon, Tencent and Bill Gates, is only achievable thanks to recent advances in AI. If the company is successful in developing a widely-used, low cost, early stage multi-cancer detection test, this will have profound implications for many traditional business models within the healthcare industry and the economy as a whole.
In the US, healthcare spending accounts for roughly 21% of personal consumption expenditure, with around $80bn being spent each year on the treatment of cancer. The potential deflationary impact of a sub-$1,000 gene-sequenced blood test to identify cancer at an early stage, when it is a lot cheaper to treat, will be significant to both the industry, monetary and fiscal policy, and society.
Looking at the bigger picture, there is an extraordinary opportunity for AI to help address some of the greatest sustainability challenges we face as a planet. As an example, if we were able to predict the shape of a protein from its DNA code – an incredibly difficult task – it would pave the way for faster drug discovery and gene editing, improved material design, or the faster transition away from traditional agriculture. In fact, modern food companies – such as Impossible Foods – are already using genetically engineered micro-organisms to make specific proteins at a very low environmental and economic cost through a process called ‘precision fermentation’. With a greater understanding of protein structure, it will be possible to produce more nutritious and better tasting products, disturbing in certain way the incumbent agricultural ecosystem.
Using AI to produce more efficient superconductor materials also provides huge opportunities in how we generate and store energy. This is already being used to improve the performance of the lithium batteries, used in electric cars and our mobile devices. However, its potential to advance technologies such as nuclear fusion could enable cheap and abundant clean energy, which would in turn provide additional benefits to society.
While there are many great opportunities borne from AI, it will also cause disruption to many traditional business models. Outdated is the traditional investment delineation of value versus growth. What differentiates businesses in the modern world is those business models that can adopt and embrace these technological advancements, and those that cannot.
Many businesses are already using AI to extend their market leadership and strengthen their barriers to entry. Adobe’s Photoshop is using AI to predict the missing background behind an object that is removed from a photo, leaving users more time to focus on the creative content. Microsoft is using AI to improve accessibility for people with disabilities through speech, text and image recognition tools. Medtronic, a world leader in medical devices, is using AI in its ground-breaking closed loop artificial pancreas to effectively predict blood glucose levels and automatically administer insulin to users throughout the day. Visa is using neural networks to proactively assess six billion daily events to identify emerging security threats in its network.
The Artificial Intelligence revolution has started and it will define the business models of the future. PWC sizes AI’s potential contribution to the global economy by 2030 at $15.7T. From an investment perspective, it will be increasingly important to assess the opportunities and vulnerabilities of business models to these advancements. This highlights the growing importance of active portfolio management and stock selection at this inflection point for humanity. But if we – humans – are successful in unlocking the full power of intelligence, the opportunities that lie ahead are extraordinary.
By Michael Topley, Head of Sustainable Portfolio Management, Barclays Private Bank
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