Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking about AI investment opportunities with Kathrin Forrest, equity investment specialist with Capital Group. We talked about what makes this tech trend so special, the importance of investor agility and we started by asking about the expected size of AI’s total addressable market.
Kathrin Forrest (KF): You know, it seems incredibly difficult to put a box around this, compared to something like smartphones. Looking at AI, it has the potential to be the next technology platform, essentially a tool that can drive productivity gains across lots of different tasks and functions. So it’s everything, everywhere, over time. And then the total addressable market, when you look at the estimates that are out there in the public domain, it is anything from $2 trillion by 2030, to $13 trillion, to $15 trillion. People really don’t know what’s the value of being smarter at everything.
Investor agility
KF: We’ve seen lots of excitement around tech and related companies that are mostly involved in the building out of the infrastructure. As the infrastructure buildout takes shape, it is very likely that we’ll see a broadening set of applications of these new technologies. And that is likely to stretch beyond IT, communication services, and related sectors, into the broader economy. So, in a way, everything, everywhere, but at different points in time. And clearly there are beneficiaries. But there are not just beneficiaries. There are also companies that might find themselves on the other side of that. A company’s approach to AI looks to become increasingly important as part of the fundamental analysis that we do every day. In the context of investors, one thing that always comes to mind is human nature. And part of human nature is when we see innovation, we tend to get very excited about it. We tend to have elevated expectations, and then the cycle shifts a little bit towards disillusionment and perhaps some questions in that regard. And eventually we’ll find the path to some sustainable level of, let me call it, enlightenment. And when you think about it in that way, you can probably expect to see stock prices go through fits and starts as they always do. So, over time, we will probably see some interesting opportunities along the way. But you want to be nimble and thoughtful about that. And you always want to solve back to your investment objectives and constraints.
Common denominators for success.
KF: What the focus is on right now are the things that help with the infrastructure buildout. So companies that have access to computing power, to models and proprietary data, those are some really important ingredients. And that is likely to be a tailwind for companies within semiconductors and cloud computing. Similarly, companies that develop and own foundational models that can be adapted and applied to a wide range of functions, those are probably going to be quite critical as well. And then, companies that own exclusive sets of data, especially if the data that they have is hard to replicate and ties into ways in which they try to extract money from their business activities. And you mentioned management. I would say that management execution is going to be increasingly important in this space as well. There’s certainly opportunities for management teams that are forward thinking, thoughtful and proactive. But, then, the opposite is also true: disruption of incumbent companies whose leadership teams fall behind in implementing AI strategies, or in observing how their competitive landscape is changing, how their customer preferences are changing, or how regulation is changing around them.
And, finally, what’s the bottom line on investing in AI?
KF: While there are remarkable opportunities, there are clearly risks as well. And as we go about our day-to-day company analysis, we want to think about evolving competitive pressures, regulation, input availability, customer preferences, and the speed and path with which companies adapt. And we want to do that as part of our regular investment analysis. And that applies absolutely far beyond traditional tech companies, into every sector, every industry across geographies. You know, it’s everything, everywhere… just not all at once.
Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks to Kathrin Forrest of Capital Group. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.
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