With artificial intelligence (AI) dominating conversations globally, FundCalibre’s interviewee this week sheds light on its evolution and provides insights into the investment landscape today, from ChatGPT to healthcare and more.
Why you should listen to the interview: Chris Ford, manager of the Sanlam Global Artificial Intelligence fund, has been observing the AI (r)evolution for nearly a decade now and brings all of that experience to this interview. He clearly identifies the staggering potential for companies that choose to adopt AI-improved processes – and the challenges for those companies that don’t.
This interview was recorded on 1 May 2024. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
Only in the foothills on the AI journey
“We’ve been focused on AI since 2016 – we launched the fund in 2017 – and have been telling anybody who wanted to listen that this global scenario with AI was coming for quite a long time. Certainly last year’s developments didn’t come as any surprise to us, particularly with respect to natural language processing and natural language generation, which are the foundational technologies which stand behind ChatGPT.
“When GPT-3 was launched at the end of 2022, which was the foundational technology from OpenAI upon which ChatGPT sits, that was really just the next iteration of a process that had been observable and ongoing for a number of years by that point and it shouldn’t really have taken the market quite by the surprise that obviously it did.
“It has been a fairly extraordinary 12 months as Microsoft on the back of their partnership with OpenAI launched the ChatGPT product and ripped the band-aid off. Previously companies like Alphabet in particular, had been seen to be leading in the field of natural language processing and generation but tiptoeing quite carefully into that world, I think for fear of not wanting to overstep from an ethical perspective.
“Microsoft took a different view; here’s this extraordinary powerful technology – we’re going to make it available to you, we’re going to democratise it, we’re going to monetise it, and in so doing, they opened Pandora’s Box and everything came flying out that we now have been engaging with for the last 15-16 months. And of course, as with Pandora’s Box, you can’t put the lid back on, so this is now technology that is out and in the world. We might wish that we could curate it a little differently but it is here, it’s here to stay and we now need to find a way of engaging with it safely.
“It has been an extraordinary year and one which really suggests that we are just in the foothills at the beginning of what’s going to happen in the artificially intelligent world, not at the end of it.”
The key to successful corporate implementation of AI
“We can think about the current status of AI in three ways. Firstly, from the technology angle: where are we in the development of AI from a technical perspective? Secondly, where are companies in respect of their engagement with AI? And thirdly, from an investment perspective, how do we engage with that in the investment world?
“In the technical world, the achievements of AI continue unabated. Some of the more obvious examples of this would be the achievements that Google in particular has managed to achieve through DeepMind in the world of material science or in the world of protein folding, for example, within the last 2-3 years. So, from a technical perspective, the pointy end of the spear if you like, continues to become ever sharper and there’s no sign of that dwindling.
“But at the same time, those companies that are investing in those leading-edge technologies, perhaps now have a sharper focus on how those technologies will be monetised. And that is a change in the course of the last year. And Alphabet is the company at the focus of that drive. They’ve achieved an awful lot in AI, but there is now greater focus on making sure that where there is development dollar being spent from an R&D perspective, it’s with a clear focus on what can be delivered from a cashflow perspective.
“In the corporate world, companies are very early in their delivery and engagement with artificially intelligent systems. And there are nested levels of impediment to engaging with AI. Yes, you’ve got to have the technology, but you’ve also got to have the data because there’s no use having the AI without the data to which you can address that AI to wring something that’s useful and actionable out of that information store. But actually, that’s not good enough either: ideally, you want to have well-curated data, and if you’ve got that scale of well-curated data, you’ve then got to understand a lot about your own business to understand which of your business processes can be successfully addressed to improve those processes using artificially intelligent technologies.
“The last thing you’ve got to have is a change-minded culture, because if you don’t have a change-minded culture, then it’s very unlikely that, as an organisation, you’ll be successful in your ability to deploy artificially intelligent systems to change that culture and deliver those improvements inside the inside the business.
“It was very interesting on Microsoft’s recent conference call, the CEO Satya Nadella talked explicitly about this in the case of cultural change, and he said that, in terms of the adoption of AI inside organisations, one of the interesting rate limiters is cultural change within those organisations. He specifically went on to say that what he meant by that cultural change was process change, pointing out that, at the end of the day, companies need to take one of those processes, simplify the process, automate the process, and then apply those artificially intelligent solutions to that process.
“So a lot of what we spend our time doing when we are thinking about AI is, of course, looking to understand the technology but it’s also looking to understand how we can find those companies that are capable of actually embracing that technology, bringing it into the business and delivering that corporate change.”
AI the creator…
“Not all of the ‘Magnificent Seven’ companies are engaged with AI to the same extent. On the one hand, obviously you have Nvidia, you have Microsoft, you have Alphabet, all of them very heavily engaged with AI and are pretty well understood. On the other hand, we have some really interesting companies who are using AI inside their business significantly to improve those businesses, and where we think that that adoption of AI largely stands ahead of us. For example, companies like John Deere in the agricultural equipment markets. And we’re still very early in the process of Netflix beginning to benefit from the artificially intelligent systems that they have inside their business.
“One of the more recent additions to the Sanlam Global Artificial Intelligence fund has been an Australian utility company in the integrated utility space – not perhaps the most obvious part of the economy that you would expect to find fully engaged with artificially intelligent systems, but if you’re looking at the market through the right prism, we can see great examples of artificially intelligent competitive advantage being delivered in lots of different geographies and right the way across the economy. It’s a very exciting time from that perspective.”
…and the disruptor
“If you look back even 15 years to the advent of the online travel agencies such as Expedia, Priceline, TripAdvisor and so on, those companies sprang forth without a brand and without any market share but with a data science-led approach to addressing their market. And in the face of that data-led onslaught, Thomas Cook with the best, longest-lived brand in world travel, simply couldn’t compete, and by the time it woke up and understood what was going on, it was too late and, of course, that company now no longer exists.
“We’re now seeing AI begin to disrupt the healthcare industry very, very significantly, both in respect of drug discovery, for example, on the one hand or alternatively disrupting the means by which medical imaging is delivered to patients, to streamline that process, to drive the use of medical imaging more broadly across the medical environment, but also to increase the accuracy of the interpretation of that medical imaging to the end of delivering better healthcare outcomes for patients – AI being used to manage hospital supply chain. Healthcare is an industry where we think there’ll be very, very significant disruption both in terms of delivery of healthcare, but then also in respect to the way in which it’s financed in the insurance business, particularly in North America. So, we’re finding this in lots of different places.”
Bubble – or boom?
“To suggest that everything that’s flying around at the leading edge in the field of AI at the moment will be ultimately commercially successful would be wrong. But it isn’t the same as the dot.com bubble. I’m old enough to have been running money back in the late 1990s and the critical difference here is that the companies that are characteristic of the leading edge of endeavour in the artificially intelligent world ie. the Magnificent Seven such as Nvidia, Microsoft, Meta, Amazon: these are not small companies, they’re not newly formed companies, they’re not new IPOs, they are not companies that have yet to turn a profit. In fact, many of these companies mentioned are some of the most profitable business models that the world has ever seen. And neither are they uniformly expensive, even when looked at using traditional measures. We have some significantly different circumstances in front of us at the moment than those which existed in the late 1990s into 2000s, it’s important not to conflate the two.
“Whilst the internet bubble unquestionably was a bubble – obviously with the benefit of hindsight – the vast majority of the economic value that’s been created from the internet wasn’t created in 1998, 1999, and 2000, it was created by those companies like Amazon most famously perhaps, that have subsequently built entire business models on top of the infrastructure that was built at that time. And I think what we’re likely to see in the artificially intelligent world is exactly the same thing happen here, that we’ll see business models created disrupting existing industries, facilitated by the infrastructure that’s being invested in right now.”
Conclusion
A fascinating look at the world of AI. This is an in-depth interview that merits listening to in full in order to appreciate the huge potential of AI within the global economy as well as the impact of a disruptive force.
