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  1. Wealth
June 28, 2023

Who will win and lose in the AI revolution?

Generative AI promises to transform the world. For investors, opportunities – and pitfalls – abound

By Annamaria Koerling

Everyone is talking about artificial intelligence. Some people believe it will have a more profound effect on the way we live and work than the industrial revolution. Others are even more enthusiastic, believing it could be the most significant event in human history.

Emad Mostaque, founder of Stability AI, reckons it ranks ‘somewhere between fire and the combustion engine’.

One of the most widely available tools powered by this new wave has already taken the world by storm. It took Instagram around two and a half years to reach 100 million users; TikTok reached the milestone in nine months. ChatGPT took just two months, making it the fastest-growing consumer application in history.

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The corporate world is catching on too. Analysts from Goldman Sachs have said AI could add 6–7 per cent to annual global GDP over the next 10 years. So it’s inevitable that this megatrend will have a seismic effect on investments and how we make them. Let’s start with the investments themselves.

There is a growing sense that AI is likely to upend business models and industries and reorder the investment world at breakneck speed.

Mustafa Suleyman, a co-founder of the Google-owned AI lab DeepMind (who left Google last year), has warned that ‘many of the tasks in white-collar land will look very different in the next five to 10 years’. He added: ‘There are going to be a serious number of losers.’

How to invest in AI

There is upside too. There are many ways to reposition your portfolio to benefit from the AI revolution. You can invest in companies that build AI hardware, develop AI solutions or sell AI development tools. You can also invest in companies that are effectively harnessing the technology to make better products, improve their marketing or create efficiencies.

Anyone eager to embrace this approach should be cautious, however. While the potential is exciting, the technology is not yet fully refined and there are many things we do not understand. Not all the companies that stand to benefit will even survive. Certain immutable tenets of investing remain as relevant as ever: it’s critical to spread your bets – and be ready for some volatility.

But what about the process of investing itself? Dilip Krishna, managing director of Deloitte Risk and Financial Advisory, says new AI technologies can scour multiple information sources and synthesise the findings into a report to help investors make unbiased decisions. AI can spot trends that human beings can’t, enabling them to make faster and better decisions.

How to invest in AI: Joe Biden ponders the AI phenomenon at a conference in June
US President Joe Biden takes part in an event discussing the opportunities and risks of Artificial Intelligence in June 2023 / Image: Getty

[See also: Family offices to overhaul investments after ‘challenging year’, says BlackRock]

Sam McBride, founder of BYOB, a wealth analytics and management tool designed for family offices, is already integrating an AI-driven virtual financial analyst. She sees a not too distant future where your virtual financial analyst works for you 24 hours a day, constantly analysing every data output, proactively alerting you to news and data that’s relevant to your portfolio.

But this generation of AI is still in its infancy. Could it one day play the role not just of virtual financial analyst, but also of virtual portfolio manager – and be trusted to actually make investment decisions on your behalf?

AI-driven investment decisions

Some investment management firms are already experimenting with AI-driven decision-making algorithms which continually learn and improve. The Quantwise team at Morgan Stanley are confident that their machine-learning classification algorithm has the potential for delivering strong risk-adjusted returns.

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They do, however, emphasise the importance of human input in the careful engineering and selection of the 166 metrics from which the meta-algorithm learns, as well as the importance of trustworthy data sources.

Further down the line, AI may even one day be able to ‘understand’ how you are wired as an investor – and adapt its approach based on what works best for each individual personality.

Data sources such as social network activity are likely to say a lot about the kind of person you are, and may well be more insightful than the questionnaire your bank gets you to complete to gauge your requirements and attitude to risk. An AI-driven system could also source relevant information and deliver it to you in a way that means you are more likely to act on it.

This could help people to overcome bad investment habits. If AI can be used like this, perhaps it really will ‘make humans scale’, as Stability AI’s Mostaque put it earlier this year.

If that’s the case, we should welcome it with open arms. But I will give the final word in this column to ChatGPT itself. When I asked it whether AI can make you a better investor, it answered that while AI-driven tools can help investors, ‘AI is still in its early stages and should only be used as one tool among many in making investment decisions.’ But things are changing quickly.

Let’s see how it answers the same question in a few months’ time…

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