In this edition of the Sustainable Times, we consider the revolutionary impact that Artificial Intelligence (AI) might have on human prosperity and sustainable development, and how the Premier Miton Diversified Sustainable Growth Fund is invested in the technology.
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- AI (artificial intelligence) is more than a buzzword, it is impacting our lives now.
- The potential for growth across a number of industries is very significant.
- There is a wide range of companies with the opportunity to benefit from the growth.
Are we at the start of another industrial revolution?
November 2022 saw the world introduced to ChatGPT. What followed was an explosion of interest in artificial intelligence (AI), a technology that enables computers to perform more of the tasks that historically only humans have been able to do. Companies playing a key role in enabling AI, and Nvidia in particular, were handsomely rewarded by the stock market, as an AI-craze grabbed hold of investors, politicians and businesspeople. Behind the hype was the hope that AI might reinvigorate developed economies with a surge of productivity growth. Ultimately, increases in productivity are important in how societies become more prosperous in the long term.
In economics, productivity essentially refers to how much of something of value you get (‘output’) for what you put in (‘input’). Over human history, technological development is how our species has managed to stack this ledger more in our favour to make our lives better. For millennia, the vast majority of people were farmers, as growing food was exceedingly labour intensive. Then came a series of technological developments in agricultural machinery, pesticides and herbicides, fertilisers and industrial farming techniques which meant we could get much more output (food) from the input (hard work) we put in. This made us wealthier not only by making food cheaper, but also by freeing human labour for people to become scientists, nurses, teachers, engineers etc.
Many believe that AI will cause a productivity step-change as significant as the industrial or agricultural revolutions. Across most of the Western world, living standards have stagnated and productivity growth has stalled. This has led to political and social divisions as governments struggle to meet the growing demands on their resources. If AI fulfils its potential, it could dramatically reduce the amount of time that humans spend performing basic and repetitive tasks and enable productivity surges in almost every sector, kickstarting the economic engines of developed economies.
AI also has the potential to turbocharge sustainable development worldwide. One vital area where AI is already showing promise is in healthcare. Models have been trained to review scans to identify tumours or other abnormalities. Predictive models could be used to better identify those susceptible to diseases. Medical chatbots offer a chance to improve the diagnostic and treatment experience for both patients and practitioners. In agriculture too, AI brings the possibility of more targeted chemical usage, bespoke soil management, and real-time assessment of damage to ecosystems. These improvements could unlock improved yields, while limiting harmful impacts on the environment, and help to improve diets worldwide.
However, while their potential transformative effects are profound, these emerging AI technologies typically require enormous amounts of computing power. Microchips, and more specifically the transistors within them, are the physical technology critical in generating that power. The smaller the transistor, the more we can have per microchip, and the more we can have per microchip, the more powerful our computing devices become. Historically, by making transistors smaller and smaller, computing power has doubled approximately every two years, a phenomenon known as Moore’s law. However, these transistors are now so unimaginably tiny, that this relationship has partially broken down as their size has run up against the bounds of physics.
Chips and chips
Behind the manufacture of microchips lies a web of companies, the nature of which is more akin to the human body than a typical industrial supply chain. Each company or group of companies performs a crucial role, one honed by years of specialisation, and sustained by a complex and longstanding network of interrelationships. One such company, recently in the news due to stronger than expected financial results, is the Dutch firm ASML. ASML is the only manufacturer of the machines that enable production of the smallest possible transistors. These machines are designed and built in partnership with the end client, with the process of designing, developing and manufacturing a new class of machine typically taking at least a decade.
Perhaps the most famous client of ASML is the Taiwanese ‘foundry’ TSMC. In the world of chipmaking, ‘foundries’ do not design chips but rather specialise in making them to others’ designs. TSMC is the only company that can currently manufacture the smallest viable chips in processes that can seem more akin to alchemy than science. TSMC’s end-clients include AI-darling Nvidia, whose Graphic Processing Units (GPUs) and advanced computer processors, are widely considered as the only units suitable for many of the most advanced AI functions.
The fund holds a number of companies which could benefit from the continued developments in AI, including ASML, TSMC and Nvidia. Other companies linked to AI include KLA, a company whose technologies help chipmakers to identify problems in their manufacturing processes, and BE Semiconductor Industries whose sophisticated bonding techniques help overcome some of the physical limitations of chip manufacture. Fund holdings Cadence and Synopsis produce software that enable chip design. All of these firms are not only involved in leading edge technological development but are also healthy businesses where the complexity of their products and the costs of facilities and development serve as healthy barriers to entry against would-be competitors.
But AI can’t stop anxiety
Despite this outlook and the immense promise of AI and the supply ecosystem enabling it, the technology’s development and the world at large face multiple threats. Governments worldwide have grasped the potentially revolutionary nature of AI and want to not only ensure their access to the latest technology, but also to deny it to their rivals. At the heart of this tension is the rivalry between the United States and China. It does not help that the most advanced chip manufacture takes place on Taiwan, already a flashpoint between the two superpowers. Yet beyond geopolitics, there are fears that the technology itself could fail to deliver the benefits anticipated or take much longer than expected to mature. That is to speak nothing of the anxieties about what AI could do if it does actually fulfil its potential, with concerns including AI-enabled misinformation, job destruction and social upheaval, and bigger questions about our continuation as a species.
Technology-related anxiety is, however, nothing new. Time will reveal the full implications of AI for all of us, but what is not in doubt is the potential of the technology to benefit humanity. Improved health and longevity, more bountiful and nutritious food production, vastly more efficient industrial processes, and enhanced tools for learning and development are but some of AI’s potential applications. As ever, behind all this promise sits an ecosystem of firms focused on developing the products to make this future possible.