With greater enthusiasm being placed on the future of AI, it’s important for investors to maintain strong levels of both optimism and scepticism throughout these changing technological times, says Walter Scott, part of BNY Mellon Investment Management.
There’s a good reason for the increasing popularity of the Greek ‘philosopher of change’ Heraclitus in the business world. He seems to have been musing over the age of technology in around 500 BC. To tech evangelists disruption may be synonymous with opportunity. From an investment perspective it is, of course, also strongly intertwined with risk. Alas, it doesn’t make the job of picking long-term winners any easier; not only do we need to stress test a company’s competitive moat and cash flows for a range of future scenarios, but assumptions continually have to be updated, with few sectors immune to tech-driven change. Against this flux, it won’t come as a surprise that we encourage a healthy level of scepticism within our research team – that is, we dwell as much on what could go wrong, as what could go right. Key to this approach is regular engagement with investee companies, their competitors, customers and suppliers, as well as keeping abreast of the latest developments and debates.
Last year, we attended a couple of UK-based tech conferences to this end, and can confirm that the buzz is moving on. For starters, the cryptocurrency fever of yesteryear has – unsurprisingly – waned, with much greater enthusiasm displayed around areas such as augmented reality (AR) and artificial Iitelligence (AI). Ethical discussions around the latter are gathering momentum, in no small measure due to fears that we’re racing headlong towards the realm of unintended consequences. Meanwhile, although robotics and automation will continue to displace jobs in many parts of the economy, the converse is true in the IT sector, where a skills shortage is driving up global competition, and pay, for a shallow pool of programmers. It seems today’s young can’t start practising coding soon enough, with some of the businesses we listened to expecting to hire fully-fledged coders at the age of 20-21.
In a compelling presentation at the Leaders In Tech Summit, we heard the head of Microsoft Corporation’s UK business outline some of the darker aspects of AI, particularly the urgency of developing a code of conduct for the design of AI based products and services. Microsoft predicts 95% of customer interactions will be through channels supported by AI, including chat bots, by 2025. The software giant is embedding AI in products such as Cortana and Office, and finding ever-more creative ways to deploy its machine learning prowess. This includes a healthcare-focused initiative dubbed Project InnerEye, which is helping diagnostic radiologists, by automatically delineating tumours in the space of a few minutes, as opposed to the hours required by a human.
Another example of stunning efficiency gains was insurer Hiscox’s use of Microsoft’s Azure Cloud to predict flood risk – enabling it to conduct calculations that previously would have taken eight months in a mere 12 hours. The old cliché about running to stand still is taking on a new significance in the tech age, with today’s crop of CEOs requiring greater lateral-thinking skills, and probably higher stress tolerance, than their predecessors. In the publicly-listed space, these Darwinian forces are on full display; at the current churn rate, 75% of companies in the S&P 500 will be replaced by 2025. It is clear that tinkering around the edges – say developing an app and establishing an online presence – won’t suffice. To stand a fighting chance, companies need to ensure that they keep pace with increasing consumer expectations. This involves fundamentally changing business processes, products and services.