Equity Insights
Key Highlights:
- The rise of generative AI is the latest technological shift that is changing how we leverage and interact with technology
- Exploring historical platform shifts, such as the mobile-internet cycle, can help us understand what may lie ahead
- While the semiconductor industry is currently benefitting from a flood of investment, the impact on the software sector is still in its early stages. Could previous technological cycles provide clues as to which sectors will grab the lion’s share of investment returns?
Generative artificial intelligence: the next technological platform shift
Looking at historical platform shifts, such as the mobile internet cycle, can help us understand what may lie ahead. Generative AI uses state-of-the-art language models, coupled with deep learning, to produce natural-sounding text. Critically, this new technology is changing how we interact with technology: it has unlocked the human language. Just like previous platform shifts, generative AI could transform industries and create entirely new ones.
Learning from the past to understand the future
Understanding the similarities and differences between past platform shifts and the current AI-driven cycle can help us understand the potential implications for investors. During the mobile-internet cycle, stock-return leadership changed over time among the three areas of semiconductors, infrastructure and software. However, industry dynamics have changed over the years, and it remains to be seen if software providers will take over stock leadership as they did in the past.
Exploring the implications for investors
The current semiconductor phase is being driven by the training aspect of foundational AI models. A limited number of companies currently have the ability to participate in this process, which, for example, requires fitting over 100 billion transistors on a piece of silicon the size of several postage stamps. But competition may increase as the cost of computing falls. It is still too early in the investment cycle to tell whether existing software providers will accrue the benefits or a whole new set of companies will emerge as generative AI disrupts the software sector itself. Projections for $1 trillion in capex spending on AI infrastructure in the coming years mean that adoption must be substantial to justify the spend and support profitability and the resulting equity gains.