ChatGPT brought artificial intelligence (AI) firmly into investors’ sights in 2023. But, where are we today in terms of AI and its applications, and where are we going in the future? Cherry and Mike look at the implications and whether the initial euphoria from an investment perspective is warranted. Increasing use of data is an advantage for businesses, and those that fall behind in using AI risk being at a competitive disadvantage. On balance, is AI an opportunity or a threat?
CR: Hello, welcome to Silicon Valley Byte Size, an update on the tech sector from Allianz Technology Trust. I’m Cherry Reynard and today we’re talking about artificial intelligence. The rapid adoption of ChatGPT brought it to investors’ attention and share price performance for related companies has been very strong since the start of the year. However, recent reporting suggests the tech giant may take considerable investment to realise its potential. So, with me to take a closer look is Mike Seidenberg, manager of the Trust. Welcome, Mike.
MS: Good to see you again.
CR: Can we start with a look at how AI works and the various different types?
MS: Yeah, absolutely. So much has been written, that sometimes even my head spins; I think the right way to break it down is to think about where we are today, where we’re going, and where we hope to be. Today’s AI are reactive machines - you’ve probably seen if you interact with a particular consumer brand or a business brand and, they ask if you need help. If you deviate at all, you usually just say, ‘agent’, right, because you want to talk to a person? By the way, these machines are helpful; I had a really good interaction the other day where I needed to make a return because I bought vanilla paste versus vanilla liquid, and on Amazon, its non-returnable.
But knowing you can return things on Amazon, you just have to go a layer deeper; I interacted with a chatbot, and it was a really good experience. It took me a while to figure out it wasn’t an agent, but I got my refund, and felt great as a consumer.
Where are heading, is towards limited memory artificial intelligence, which is why people are so excited about ChatGPT. 'Limited memory’ tells you there’s only a certain amount of characters this technology can handle today, and that continues to grow.
Where we want to get to eventually, is more a kind of theory of the mind, right? How do we as human beings interpret things? A great example is Google Maps - whether you miss your turn or not, it’s very rudimentary with respect to just rerouting you –ideally we’ll create machines that interact more effectively with humans and consider our state of being, but we’re not there yet.
What we’re seeing are use cases that are really innovative primarily because technology tends to allow companies to sell more things, have happier customers or take costs out, right; it’s kind of those three things I always think about technology solving challenges. So yeah, AI is really top of mind today, and who knows where the future goes?
Byte Size Takeaway: How might the cyber security sector be influenced by artificial intelligence (AI)?
CR: You mentioned those use cases, are there certain sectors or areas where it has particular application?
MS: Yeah, great question. Images have a lot of people talking - specifically a medical use case. No matter how good you are as a radiologist, using technology to augment your decision by looking at multiple images of a PET or a CAT scan may identify something not perceptible to the human eye; artificial intelligence allows that. If we extrapolate that, earlier diagnoses lead to better outcomes, so that’s a good use case.
In the advertising space, it may ensure that the correct image is being served to the customer, right? Really allowing the personalization experience and you’re going to see companies doing really clever things to market to folks like me, and you. In oil and gas, making better decisions as to where you might put a water injector in an oil field to increase production. Stuff like that, it really runs the gamut; you’re hearing me talk about various verticals, but interest in AI is across all businesses seeing applicability, and creating use cases that really open the horizon for their business.
CR: Yeah, part of the excitement since the start of the year, is that there are so many applications for it. But Microsoft and possibly Meta, spooked markets in their results statement, saying there’s a lot to gain out of AI, but at considerable cost. Where are we on that cycle? Is considerable investment needed to realise its potential?
MS: Absolutely. Like a lot of things in technology, the cost curve comes down over time as more and more people use it, and we’ve seen this time and time again. If you’re in this business, allow customers to use the technology, establish use cases and as you create scale, costs come down. As Microsoft alluded, forward investment is needed and that shouldn’t be terribly surprising. The chief operating officer of one of our holdings, recently talked about the importance of making the equation between the customer pain and the value his company was providing, a positive one, right? You want charge a price where companies, or customers, really feel they’re getting great value. He did a really good job of articulating that value, and had a great use case supported by simple math; I was just like, yeah, I’d buy this, if I were running a business, because it was a positive net present value - a positive return - and it was really interesting to hear him think about that.
Historically, great businesses create value for their customers in using the product; if you don’t you go by the wayside. So, I think that business models will be figured out over time, but there is a required investment early on as we think about artificial intelligence, and the applicability that we’re seeing.
CR: From an investment perspective, presumably there are two sides to it - companies that are beneficiaries of AI, who will make money from it, and then disrupted companies who were kind of on the wrong side. So, I wonder, can you talk me through companies benefiting and those that might be disrupted, that you’re keeping an eye on?
MS: Yeah, we are living in a very quickly changing dynamic world, right? If your business foregoes using certain technologies, you can get left by the wayside. We’ve seen it with the movement of digital and previously with the internet, etc.
Artificial intelligence is another example; the key point is having data really creates an advantage, so, thinking about whether businesses built their systems with data in mind from the getgo. I’ll use Netflix for an example - an amazing merchandiser of content, and a system designed from day one, with data - with
the backend in mind, right? Like, what do they do with the data, that Mike Seidenberg grabs a piece of content to watch? How do they take that information and replicate it or use it across lots and lots of users in a very agnostic way, but make sure they understand not only how to get me to watch things, but also
how should they purchase? What should they purchase? Again, in artificial intelligence, having that data and being data centric, is going to be really important to businesses, and if you’re not, you’re at a competitive disadvantage. So, we’re spending lots of time as a team, thinking about companies that basically have
that data to leverage it into the AI realm.
CR: Share prices getting ahead of the likely growth trajectory seems to be a perennial problem with any fast-growing technology area. How do you manage that in the portfolio? And make sure you’re not overpaying for that growth?
MS: Sure. The notion of kind of thinking long term, yet also being really cognizant of the short term. And it really boils down to risk-reward; what is the risk-reward of a particular company, relative to their longer-term growth rate? Look, we manage it like a lot of people do. We very, very much think about position size, we think about when things seem too exuberant potentially, trimming that position.
But it’s active risk management, and a core tenet to how we run the portfolio. I will tell you with secular ideas, I’m probably going to err on the side of owning, versus not owning, given that in my career, I’ve just seen the secular themes play out really long and over many more years than investors typically realise. So, it’s
ideas, it’s identifying the companies and who we think are the winners, and going through our process and making sure we have exposure to those winners in some capacity.
CR: So just to wrap up, on balance, do you think this is an opportunity or a threat?
MS: I think on balance this is an opportunity. If you roll the clock back 70 years, there were huge pools of people typing in corporations, right? And those typing pools were replaced as the electric typewriter came of age. And everyone thought there’d be job loss, etc, etc. What you want, as the world progresses, is people using the best technologies to do their jobs in the most effective manner.
Now, there may be some job loss, if your job is a very rudimentary one, where you just kind of go through the same task day in day out. But for a lot of people, I think artificial intelligence is probably an enhancement, to the job opportunity for the average kind of knowledge worker. So, yeah, look, I don’t think you can stop the progress of technology.
There could be some job loss near term, but I think over time, it probably is more about job creation versus job loss. I will also caveat - it’s early days - I think that there’s a lot of learning to be done. But I don’t think we’re going to stop the wheels of progress. As people look at this technology, it’s such a key enabler to their businesses.
CR: Great. Okay, we’ll wrap up there. If you have any questions on the subjects we’ve discussed today or anything about the Trust, please do go to the website - allianztechnologytrust.com or contact one of the sales team. So, thank you, Mike, for those insights today. And thank you all for listening.
Lead portfolio manager Mike Seidenberg shares his thoughts on the second quarter of 2023, the rally in some tech stocks and performance drivers, and whether that narrow rally might widen out.
Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Past performance does not predict future returns. For further information contact the issuer at the address indicated below. This is a marketing communication issued by Allianz Global Investors UK Limited, an investment company, incorporated in the United Kingdom, with its registered office at 199 Bishopsgate, London, EC2M 3TY, www.allianzglobalinvestors.co.uk. Allianz Global Investors UK Limited company number 11516839 is authorised and regulated by the Financial Conduct Authority. Details about the extent of our regulation are available from us on request and on the Financial Conduct Authority’s website (www.fca.org.uk).
The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted; except for the case of explicit permission by Allianz Global Investors UK Limited. The Brunner Investment Trust PLC is incorporated in England and Wales. (Company registration no. 226323). Registered Office: 199 Bishopsgate, London, EC2M 3TY.
Read the latest edition of DIY Investor Magazine
DIY Investor Magazine
The views and opinions expressed by the author, DIY Investor Magazine or associated third parties may not necessarily represent views expressed or reflected by EQi.
The content in DIY Investor Magazine is non-partisan and we receive no commissions or incentives from anything featured in the magazine.
The value of investments can fall as well as rise and any income from them is not guaranteed and you may get back less than you invested. Past performance is not a guide to future performance.
DIY Investor Magazine delivers education and information, it does not offer advice. Copyright© DIY Investor (2016) Ltd, Registered in England and Wales. No. 9978366 Registered office: Mill Barn, Mill Lane, Chiddingstone, Kent TN8 7AA.