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AI - Artificial Intelligence
After a breakthrough year for generative artificial intelligence, investors are looking for signs that new deep learning tools and techniques are filtering through to more industries. The shift from the excitement phase into the deployment phase is expected to continue in 2024, eventually helping to raise global productivity and potentially helping address challenges coming from unfavorable demographics in some countries.
However even as investors seek out innovation that can drive earnings growth, discernment will be critical in 2024. “We are in an era of wider dispersion between high- and low-quality growth companies.”
Which industries could be an investment opportunity in 2024?
The semiconductor makers and companies that produce equipment for semiconductor manufacturing — the hardware underlying the entire AI buildout — are in focus. Capital expenditure on the most advanced equipment used to produce semiconductors is growing rapidly. This is driven by both advancements in AI, which necessitate new chip designs, and the reshoring of semiconductor production by developed countries to help the resilience of their supply chains.
Recent AI advances and growing adoption of cloud computing, meanwhile, are fueling demand for increasingly advanced data centers. On the software side, enterprise spending on digitalization continues to increase.
Cybersecurity companies are also adopting cutting-edge AI techniques to automate the identification of potential threats and real-time response to security incidents. “Digital attacks are becoming increasingly sophisticated, frequent, and damaging.”
Healthcare is an industry to watch given AI’s potential to transform complex biological data into meaningful insights, with potential implications for drug development, medical technology, and digital healthcare. AI algorithms can distinguish real heart attacks from false alarms with astonishing accuracy. An AI-powered smart implant for knee procedures can detect patients’ motion post-surgery, delivering real-time recovery insights to medical staff. “We see some of the most compelling AI-related investment opportunities in drug development for precision medicine, tech-enabled procedures, and digital healthcare.”
There appears to be a disconnect between where most investors are positioned and the best potential opportunities. Investors who look to complement their existing exposure to mega-cap US technology companies with allocations to other, often less well-known, technology firms, may be able to access secular winners that are relatively underappreciated by the broader market.
When it comes to introducing new technology into businesses models, tech as a standalone thesis isn’t sufficient to drive returns. Firms must implement the right processes, structures, and frameworks to exploit technology efficiently. For instance, identifying and implementing specific use cases for generative AI that will drive business growth will be key in driving potentially strong returns on investment.
And finally, AI is poised to support investors because of its capacity to process vast amunts of information quickly and accurately. This helps investors make more informed decisions by detecting trends and patterns, including data relationships that may be difficult or even impossible for humans to identify. “We expect it will become increasingly important for investors to leverage new AI techniques to systematically extract information from data to inform investment decisions, particularly in public equity markets,” Goldman Sachs Asset Management writes.
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