Opinion: AI phenomenon – from drawbacks to investment opportunities 

Don Davis

Artificial intelligence has been around for decades. The Logic Theorist, a computer program designed to mimic human problem-solving skills introduced in 1956, is considered by many to be the first AI machine. However, it was 2022’s release of ChatGPT, a language processing chatbot designed to create humanlike dialogue developed by OpenAI, that sparked the considerable excitement for AI we’re seeing in industry, popular culture and the financial markets. 

ChatGPT, which stands for chat generative pre-trained transformer, uses an iteration of AI that learns the patterns and structure of its input training to generate content in a variety of types, including text, imagery and audio. Just two months after its launch, ChatGPT reached 100 million active users, making it the fastest-growing consumer app ever. 

Currently, the most exciting uses of AI center on improving productivity. Software developers are developing AI programs to assist with writing code. With training, these tools could do some of the grunt work associated with software programming, which allows developers to focus on work at a more abstract level. Biotechnology and pharmaceutical companies are using AI tools to sift through vast amounts of data to shorten and improve the drug discovery process. Analysts believe AI-assisted improvements in early-stage drug discovery could lead to the development of 50 novel therapies over the span of 10 years, creating a potential $50 billion opportunity for these companies, according to a research report, titled “Why Artificial Intelligence Could Speed Drug Discovery,” by investment firm Morgan Stanley. 

Current limitations and drawbacks 

As with most technology dubbed a game-changer, generative AI has its downsides. Models like ChatGPT learn from the training data they receive. These models are likely to experience hallucinations, meaning it thinks the answer it’s giving is correct when the response is wrong.  

Further, if the training data is biased or includes distortions, these models may incorporate falsehoods into its responses. This opens the door for bad actors to create disinformation or propaganda campaigns. AI also lowers the barrier for all sorts of cyber threats since no programing ability is needed. It is likely corporations and individuals could see more sophisticated identify thefts, malware and ransomware incidents, as well as social engineering schemes like phishing attacks. 

The advent of this technology also poses legal and ethical concerns. If ChatGPT generates content that mimics original copyrighted work, is it an infringement of copyright or intellectual property? Then there’s the fear of job displacement or elimination due to AI’s inherit automation applications. 

Investment opportunities 

With all the recent buzz on AI, investors naturally want to know where the opportunities are. While many AI companies are unprofitable private companies, there are a few large technology and software companies that currently have revenue streams from AI applications. Interestingly, there are few “pure play” AI companies – those focusing on only one industry – listed on the major U.S. equity indexes. Nvidia (Nasdaq: NVDA), manufacturer of the semiconductors that power many AI models, is arguably the largest company with the greatest AI exposure on the S&P 500. Its revenue and earnings expectations have risen this year due to the strong demand for chips. Microsoft (Nasdaq: MSFT), an early investor in privately held OpenAI, has incorporated AI capabilities into its Office suite of products and Azure cloud computing business. In addition, Google parent Alphabet (Nasdaq: GOOGL) has released its own generative AI chatbot known as Bard. 

Surprisingly, although 2023’s year-to-date S&P 500 returns can be attributed in part to AI euphoria, no company listed on the index derives more than 20% of its revenue from AI-focused products. Still, AI is expected to play a significant role in the product development of multiple companies for years to come. 

It is exciting to see such an innovative technology being developed and implemented in real time, as well as potential investment opportunities as companies incorporate AI into their operations. 

Don Davis is a senior portfolio manager for Commerce Trust Co. in Springfield. He can be reached at don.davis@commercebank.com.