Investing in AI: Opportunities and Risks

Table of Contents

1. Introduction
2. The Economic Impact of AI
3. AI and Productivity in the Workplace
4. AI and the Labor Market
5. Investing in Disruptive AI
6. Lessons from the Dot-Com Bubble
7. AI-Based Investing Tools
8. Conclusion

The Impact of AI on Investing: Opportunities and Risks

Welcome to season four of Fresh Invest, the Podcast where we explore all things investing. In this episode, we'll be discussing one of the buzziest topics out there: Generative AI. Those two words can bring up all kinds of feelings. It can be intriguing, concerning, and exciting at the same time. And for investors, they spark a lot of questions about how this technology will impact portfolios. Today we'll take a look at AI from a business and economic perspective, with Lubna Lundy, director of investment product at Fidelity. We'll discuss opportunities that might be born out of the AI boom and how investors can evaluate them.

The Economic Impact of AI

There's no doubt that AI is a game-changer. According to McKinsey, AI could add between two to four trillion to the global economy. But it's still really early, so we usually shy away from these big estimates. People have heard this comparison between AI and the iPhone moment. A lot of people did not anticipate the trillion-dollar economy that the iPhone would drive. And now with breakthroughs with large language models and generative AI, the thinking is it could also drive a significant economy. We've seen this with a lot of tech revolutions from PCs, internet, mobile tech, cloud computing, now AI, they all present these huge opportunities and also challenges across many industries, with corresponding winners and losers, across many asset types. We believe the key is managing the shifting risks and identifying profitable opportunities across companies and sectors.

AI and Productivity in the Workplace

AI is already starting to impact investment portfolios. We use natural language processing, or NLP for short. It's a subset of AI and it allows big asset management firms like Fidelity to use text-based documents for companies to identify companies that may Align with themes and strategies. So much of investing is how do You capitalize on data and information, in addition to macro or market inefficiencies? And so with AI, we're starting to see how you can do that more. It's gonna be important for investors to understand what are the companies that are adopting AI? What are the sectors that are adopting it? The adoption curve is gonna be different across different sectors.

AI and the Labor Market

There's no doubt that AI is projected to have a significant impact on the labor market. But it's also gonna Create jobs. Most jobs, many jobs are partially exposed to automation in some form or fashion. McKinsey projected that automation could potentially impact employees. The work activity that consumes 60 to 70% of employees' time can be replaced with automation, which is very significant. But we're also looking forward to more productivity, more efficiency, the potential to remove potential risks in Current processes. We're also looking forward to some of these other tools, these AI assistant tools, that are in the process of launching, or may have already launched, that boast capabilities from taking ideas and creating a PowerPoint presentation based off those ideas, or summarizing key points from a video call after you hang up.

Investing in Disruptive AI

AI has really become like table stakes for innovation and disruption. We have disruptive ETF strategies that give you some exposure to AI, and they focus on disruption in five key areas that include medicine, technology, automation, communications, and finance. And like I said, AI shows up in some form or fashion in all of these strategies. It's gonna be important for investors to know what companies are prioritizing education and training for AI. They may be more resilient in the long run. They even may be better employers and better investment opportunities.

Lessons from the Dot-Com Bubble

The dot-com bubble was a time when there was a rapid rise in US tech stock valuations that were fueled by investments in internet or dot-com-based companies. But you had a lot of these startup dot-com companies that didn't really have track records of success. In some instances, companies were just slapping .com at the end of the company name in hopes of attracting investments. And so you did have companies that failed, but you also had winners that came out of the dot-com bubble, winners like Amazon. Amazon started out as an online bookstore, and they continued to focus on innovation and expansion, and they saw their stock price go from less than $10 to over $100 before the crash.

AI-Based Investing Tools

AI-based investing tools are changing the investing experience. We're seeing lots of disruption from marketing, content creation, robotics, automation, of course. And last time we chatted, we talked a little bit about alternative food sources and crickets. In addition to precision medicine, precision agriculture is a thing because of the issues with food scarcity. Digital infrastructure is so critical. AI becomes more powerful with better digital infrastructure. Cloud computing is one of the fastest-growing areas of technology according to IDC. And with cloud computing and AI, there's this symbiotic relationship when it comes to automation, and a lot more physical tasks are being automated.

Conclusion

AI is here and it's here to stay. It's an interesting time for AI because it's here and it's here to stay, but at the same time, many of the anticipated changes aren't quite a reality yet. And since all this comes at a time of massive economic volatility, it'll be interesting to see the response and sentiment from investors as developments unfold. But with new tech, there's always the fear of the unknown. Could AI write podcasts in the future? I don't know, I'd love to see how they come up with a podcast for this. But with emerging technology, there's also the chance and opportunity to drive new jobs, and that's really important for long-term economic growth.