To date, AI leadership has been narrowly focused on those with deep enough pockets to exploit the trend. Big tech names such as Microsoft, Google and Amazon have done blockbuster deals with AI start-ups to steal a march on the wider sector. These three names accounted for two-thirds of the $27bn raised by fledgling AI companies in 2023, according to private market researchers PitchBook. Overall spending on AI groups in 2023 was nearly three times as much as the previous record of $11bn set two years ago. Microsoft alone has spent around $13bn on AI.
First movers to AI have reaped the rewards
Share prices for the front-runners on AI, the so-called ‘Magnificent Seven’ have run up a long way, accounting for the majority of the gains of the S&P 500 index in 2023. They are also bringing the first products to market. Microsoft’s Azure platform has been buoyed by a greater than anticipated uptake of AI workloads and cloud migrations, and now has over 18,000 companies using it. The company has also released its Copilot for Office 365, a significant development in the application of generative AI and important in growing the real-world uses of AI.
Precedence Research puts the potential for the global AI market at $1.5 trillion by 2030. Google CEO Sundar Pichai believes AI will touch every industry, every sector, every job role and change our lives, the way we work and way we live. However, AI will need to move beyond this narrow group of companies if it is to achieve its potential. Companies need to invest and find uses for it, and reap the benefits in improved productivity and growth. It needs to become a competitive advantage.
Equally, for investors, these early adopter companies are now very expensive. The Gartner hype cycle, devised in 1995, suggests that technologies have a relatively predictable evolution of innovation, expectations, disillusionment, enlightenment and productivity. Its latest report showed that generative AI is currently at the ‘peak of inflated expectations’. The next step? The ‘trough of disillusionment’. This is where companies begin the thorny business of experimenting with real-world uses for AI, with all the commensurate highs and lows, before its key uses cases become clear and the productivity benefits achieved.
AI companies must also navigate regulation. Policymakers are determined not to make the same mistakes as they did with social media. 2023 saw the introduction of the EU’s Artificial Intelligence Act, while President Biden also issued an executive order on AI regulation in October, and a bipartisan bill on an AI governance framework is currently going through the houses of congress. The large enterprises are generally on board with this taking place, but the shape of regulation is still unclear.
The second wave
Markets are starting to turn their attention to the second wave of beneficiaries. The ‘killer app’ that finds a new use for AI is likely to remain elusive. The next set of beneficiaries are more likely to be the users of AI, rather than those generating it. These include companies that already have significant proprietary data they can harness to provide insights and drive product development.
Experian and Relx are two examples of data-focused UK companies with broader expertise in AI, machine learning, and natural language processing. They have been leveraging these tools in their products and services for quite some time already. Both view the evolution to generative AI as a big opportunity for their businesses. They are differentiated by high quality and largely proprietary data, and this strengthens their competitive moats.
Both companies are using AI in two main ways:
- To create new products and services
- To realise operational benefits.
Importantly, management teams are also mindful of regulatory governance and the need to protect consumers and to ensure fairness in decisions that impact them.
Many companies are recognising the opportunity in AI
Consulting group Accenture has been helping companies develop their strategy and business case on artificial intelligence. Its cloud business accounts for nearly half of revenue and artificial intelligence is a natural evolution of cloud computing. Other companies are pro-actively using AI to support various business initiatives, ultimately helping to reduce costs or drive sales. Multi-national insurance and financial-services company Prudential uses AI through a number of partnerships, including ones with Google Cloud and the UK’s Babylon Health, to power its highly successful, first-of-its-kind digital app Pulse.
The healthcare industry has also been a significant beneficiary of AI technology. AI-powered medical devices and diagnostic tools can help healthcare professionals make accurate diagnoses, detect diseases at an early stage, and provide personalised treatment plans to patients. Additionally, AI can help hospitals and clinics streamline their operations, optimise resource allocation, and reduce costs.
There will always be setbacks and periods where the technology appears to be moving backwards. As people begin using AI-related applications, the prevalence of errors will grow. There will undoubtedly be some difficult headlines where AI is employed in sensitive sectors such as health and defence. Equally, a fundamentally disruptive application could still be some way off. However, from these setbacks and experimentation uses cases for AI will evolve. This is where the real revolution may happen.
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