Global equities: What to look for when investing in AI

Which companies will benefit from AI technology in the long term? Which are caught up in a short-term frenzy? Pendal global equities analyst SUE SCOTT explains what to look for

• AI has changed investment landscape within months
• Companies ignore AI at their own peril
• Find out about Pendal Concentrated Global Share Fund

WITHIN months, artificial intelligence (or AI) has changed the investment landscape, helping drive the S&P500 into a bull market.

But which companies and sectors stand to benefit from AI technology in the longer term?

Which are just caught up in a short-term frenzy?

The technology has the potential to change every industry, says Sue Scott, a senior investment analyst with Pendal’s Concentrated Global Share Fund.

It’s about much more than investing in companies providing computing power and AI services, says Scott.

It’s about investing in companies that understand AI will become intrinsic to how business runs.

“The genie is out of the bottle. At an enterprise level you risk disruption if you ignore it.

“AI is going to have a significant impact on how all industries operates.”

Signs of a good AI strategy

What does Pendal’s global equities team look for when assessing a company’s AI capabilities?

“We’re looking for signs that the board and management are examining how the technology can improve their products and services and increase productivity,” Scott says.

“It’s not about how many times it’s mentioned on a conference call. It’s about understanding AI.

“Does the board have technical expertise? Are management introducing pilot programs? Are they thinking about the ways they can harness AI to improve productivity? Do they have a robust governance function?

“They’re the sorts of things were asking any of the companies we invest in.”

Look also for companies with a strong Chief Technology Officer, she says.

The CTO role “is becoming increasingly important, whether you’re a technology company, a mining company, or a consumer company.”

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AI pitfalls

AI has its challenges too, Scott says.

“Mass adoption means a huge amount of additional computing power is required, which is currently expensive and energy intensive.

“Lots of data storage is required and you need a network robust enough to transport all the information.

“The elephant in the room is regulation. Regulators have shown in the past that they are very slow on the uptake when it comes to new technology,” she says.

Scott says while Open AI’s Chat GPT was only launched late last year, AI has been around for much longer.

“AI is essentially a combination of computer science and data sets that enable problem solving and that’s been happening for years,” she says.

“Think about your first interaction with a chatbot and how that has improved over the last few years. Think about how much better search, Siri and Alexa are.”

“There’s also been huge developments in industrial sectors – autonomous mining trucks, automated fulfillments centres underpinned by AI technology have driven productivity gains, while consumer sectors have benefited from improved online advertising conversion rates.”

A printing press moment

The release of OpenAI’s ChatGPT was a turning point, however.

Scott agrees with founder OpenAI founder Sam Altman’s comment that AI could be a “printing press moment”.

“Right now it’s a load of raw data that generates outputs based on statistical probabilities when prompted. In the future you will see more multi-modality models. It won’t be just text but images, audio and video.

“A ChatGPT-equivalent won’t be writing just the speech, but the slide presentation to go with it. A search engine won’t just give the recipe for a chocolate cake, but also a video explanation of how to make that cake.”

All companies should be thinking about AI and how it can improve commercial outcomes for their business, she says.