Equities: How Artificial Intelligence Will Transform Our Lives... And The Stock Markets

Artificial intelligence (AI) is an increasingly hot topic. Unlike traditional computer applications which use predefined structures, AI is a tool which can adapt through self-learning. In short, the programme learns by itself and can be improved over time. AI is not a new concept - it emerged in the 1950s - but its exploitation is now possible thanks to the immense sophistication of IT tools and the development of "big data", i. e. the management of large databases.  

The scope of AI applications is enormous and will grow in the coming decades. Many sectors are concerned: banks (automated investment advice), healthcare (diagnosis), trade (better merchandising, automated customer service), communications and media (automated press articles, machine translations), industry (automatic production lines), etc. Companies will find a host of uses for these new "smart" computer programmes. Production process control, product quality, sales capabilities and customer knowledge are likely to improve through AI. Capital expenditure in this area will undoubtedly explode over the coming decades. The International Data Corporation estimates that companies will spend $57.6 billion on AI worldwide in 2021 compared with only $12 billion today. As a result, future growth of this market will be gigantic for the technology sector, especially for semi-conductors and software & services. Established technology giants, such as Google, IBM, Apple and Intel, have bought out small innovative companies to position themselves on AI. But, as always during periods of strong innovation, some groups will negotiate the turn perfectly, while others will lose out.

Beyond the technological sector, AI raises the question of the disruptive impact on many sectors of the economy. AI is fully in line with the current wave of innovations (digitisation, big data, etc.) that are transforming traditional activities. It therefore offers an opportunity for some companies.  Rapid adoption of these new AI technologies may be a significant competitive advantage for companies that succeed, before their peers, in transforming the way they operate. In particular, they will benefit from significant productivity gains through the automation of certain tasks, and therefore higher growth. Conversely, AI may be a source of risk for companies which will see their revenues diminish due to the obsolescence of their production facilities in the face of competition from AI. 

In this environment, investors must remain vigilant and keep an eye on the impact of innovation on company business models. With a deep digital transformation underway, the risk is investing in value traps. Stock-picking by an experienced, non-automatic advisor has become even more important today.