AI: The great acceleration

Technology investing has always been a rapidly evolving sector, and 2024 will be no different. Last year OpenAI set the world on a path of great acceleration, driven by rapid evolution and broader adoption of AI. Generative AI is the most significant tech innovation since the internet, and such large paradigm shifts bring disruptions that offer investable opportunities.

AI has been a transformative force for a while (remember when Netflix content recommendations started working properly? Thank deep and wide neural networks!). In 2023, AI’s endless algorithms and chip hardware became increasingly sophisticated, leading to more efficient data processing and usable output for decision-making. We expect 2024 to be an inflection point for AI with business broadening its integration - enhancing productivity and creating new opportunities in Research & Development.

The development of AI ethics and governance frameworks is also important for ESG-concerned stakeholders, like us. Data privacy and algorithmic biases are among issues in play. While there are certainly risks, AI can also help stakeholders to assess impact (and risk).

While the ultimate blend of ‘investment-to-benefit’ is yet to be seen, there is likely a material uplift coming to those companies who effectively use the technology. Productivity benefits for society are potentially enormous. Revenue wise - differentiated product features will allow businesses to drive sales and enhance customer stickiness.

The balancing of technology risk, simplification, interoperability, and capability are among key drivers around the cost line that will determine eventual Return On Investment. Effective tool, or distraction? Those who fail to wield AI appropriately risk being left behind.

Cloud computing: transformation, growth and integration

Cloud platforms are crucial for deploying AI solutions, handling datasets, and providing computational power. Cloud computing already saw significant growth in 2023 with GenAI adoption requiring reassessment of data strategies - adding to discussions about planning for cloud transitions. Multiple opportunities exist across insight, analytics, modelling, security, and back office. Enterprise security – for example – can be enhanced by ‘next gen firewalls’ which allow companies to spin up  virtual firewalls at pace.

Investment strategies

Looking back, the internet revolution of the 2000’s brought dynamic industry returns. Initially, cables and hardware companies saw excess returns then internet service providers such as search and online stores. In the cloud transformation era we expect excess returns to collect among chip manufacturers / cloud infrastructure providers first and then software / service players.

We own several companies with exposure to these trends. Datacentre builder, owner and operator Next DC (ASX: NXT), Network-as-a-Service provider Megaport (ASX:MP1), and Cinema enterprise resource planning software business Vista Group (NZX: VGL). For us, these companies intersect their own unique value accretive time segments of the company maturity cycle sitting within cloud infrastructure, connectivity/data/network optimisation and cloud transformation (respectively). We expect many more investment opportunities to emerge.

Leading by example

At Mint we’ve started to investigate and implement AI into our analytical and operational processes. GenAI, for example, can improve productivity in discovery, information compilation, communication, and document comparison. Yes, these still need human oversight (!) but it allows humans to focus on the more critical steps. Another area where we are successfully deploying AI is in software development where what once required a lot of domain knowledge now simply requires accurate description of your problem and an intermediate programming knowledge.

Risks and challenges

Investing in technology companies carries significant risk. AI will only accelerate the pace of technological change, increasing the risk of disruption, competitive advantage erosion and alter the trajectory of revenue / costs. All of these create large swings in perceived value. Investors must stay informed and agile. Invest wisely or speak with an expert.