The artificial intelligence revolution is in full swing, and Nvidia’s recent financial performance is a testament to this transformative era. For investors as well as the rest of the world, a new era has arrived.
As François Rimeu, senior strategist at La Française AM said ,the recent leap in Nvidia’s share price underscores the superior performance of tech stocks, despite more than half of the listed companies experiencing a downturn. «A staggering 25% single-day surge in Nvidia’s market value, now exceeding $700 billion, is no ordinary feat,» he told clients.
The rise of generative AI is making waves from Wall Street to classrooms across the world, signalling a dynamic new phase in AI development. This advancement is reshaping the investment landscape and could redefine the way we live and work. Generative AI, with its ability to create new content that rivals human-generated output, is expanding its influence into new domains.
Rivalling human output
«Generative AI stands out from its predecessors due to its ability to use machine learning to create new content that rivals human-generated output,» Anjali Bastianpillai, senior product specialist at Pictet Asset Management, said in a note to investors.
ChatGPT, developed by OpenAI, with Microsoft as the main shareholder, is a prime example of this technology. This AI chatbot uses a novel deep learning process known as a transformer to provide seemingly human-like responses to users› text prompts.
The global AI market, encompassing hardware, software, and services, is projected to grow nearly 19% annually, reaching 900 billion dollars by 2026, according to the International Data Corporation. Goldman Sachs estimates that AI could add a staggering 7 trillion dollars to the global economy over the next decade, largely due to the productivity enhancements it offers.
Concerns in Europe
However, the rise of AI is not without its challenges. Concerns over data accuracy, copyright infringement, privacy, and market concentration are already being addressed, with AI being used in certain settings to self-police. Yet, there are also concerns about what AI might mean for our livelihoods and whether, if left unchecked, it could pose more serious threats to society. Official regulation of such technology is crucial – a task both governments and companies themselves are actively working on.
In Europe, that regulation could come sooner than in other parts of the world. On Wednesday, the European Parliament made global headlines after it adopted its negotiating position on the EU›s AI Act with 499 votes in favour and 28 against, opening the door for talks with EU member states on the final shape of the law. The parliament supports rules that promote the uptake of human-centric and trustworthy AI and protect the health, safety, fundamental rights and democracy from its harmful effects. The rules would ensure that AI developed and used in Europe is fully in line with EU rights and values including human oversight, safety, privacy, transparency, non-discrimination and social and environmental wellbeing. Italy already has banned ChatGPT and the EU is considering placing restrictions on this service.
As the world moves deeper into this new era of AI, it will be crucial for investors, businesses and policymakers alike to stay informed and adapt to the changing landscape. «The performance gap between the Russell 2000 and the Nasdaq, or between the S&P Equal Weight Index and the market-cap-weighted index, highlights the growing focus on indexes,» noted Rimeu of La Française AM.
Meanwhile, Bastianpillai of Pictet Asset Management anticipates the rapid commercial adoption of large language models (LLMs) for commercial use. “It is too soon to have a clear view on which companies might benefit most from AI, but what we can say with greater confidence is that the initial opportunities will fall to firms operating in three main technology sectors.”
Infrastructure, chips and software are winners
Companies active in cloud infrastructure, semiconductors and software firms stand to emerge as winners in the generative AI era, he said.
Data-centric generative AI needs a powerful cloud infrastructure provided by large cloud platforms known as hyperscalers. These include AWS (Amazon Web Services), GCP (Google Cloud Platforms), Microsoft Azure and Meta (private cloud), Pictet said. Together, they represent around 78 per cent of all global cloud capacity. Cloud infrastructure service revenue reached 63.7 billion dollars in the first three months of 2023, a year-on-year increase of 10 billion dollars. “We expect strong growth to continue,” said Bastianpillai.
Among semiconductors, chip maker Nvidia of course already stood out, thanks to its high-end datacentre accelerator chips such as A100 and the new H100. These chips now account for half its revenues. “More pedestrian” chips made by market leader Intel and California-based AMD are trying to catch up. Chip designer firms like Synopsys and Cadence already have designed hundreds of new chips for the AI era.
In the software business, Pictet noted that Microsoft’s Github Copilot as the “best scaled example of AI in software today”, delivering a 55% productivity improvement for code developers for a subscription that costs 100 dollars per year. Pictet also noted Adobe’s Firefly image generation software and cybersecurity firms Crowdstrike and Palo Alto as companies embracing the power of AI.