Artificial Intelligence (AI) will have profound implications on the broader economy. The purpose of this piece is to share our views as to whether we perceive AI as a net positive or not for society. As our clients will be aware, our Advisory Committee plays an important role in our investment process. We first addressed AI with them back in 2023, but the topic remains a regular occurrence in our meetings. We wanted to share our current thoughts on what is a constantly evolving theme. We will be writing more about where we see investment opportunities in increasing the efficiency of energy use in data centres in the coming weeks.
The impact of AI on the broader economy
There is a lot to be excited about regarding the potentially positive impact AI can have on society. A significant opportunity is in improved healthcare outcomes, as AI algorithms can analyse large amounts of medical data to identify patterns and provide more accurate diagnoses. It can also help increase productivity and efficiency across almost all industries, from manufacturing to finance. By automating repetitive and dangerous tasks, AI can free up time for workers to focus on more creative and high-level work. It also has the potential to greatly enhance scientific research and development, helping researchers make new discoveries. Finally, personalised learning experiences could assist with education, providing a low cost solution to help students to learn at their own pace.
Overall, the potential benefits are vast, and it is an exciting technology that has the potential to greatly improve many aspects of our lives. For a detailed discussion of the potential benefits from AI, the essay from the CEO of Anthropic is worth a read: Dario Amodei — Machines of Loving Grace.
AI’s impact on jobs and productivity
AI and automation have long been discussed in the context of replacing manual jobs, which are often low in satisfaction and high in physical labour. However, the risk of automation has now extended to white-collar jobs, in fact, this is where AI has the potential to impact the greatest. Take software development, developers can use the technology to create code that they can test and then refine. A paper written by economists at MIT, Princeton and the University of Pennsylvania analysed data from over 4,800 developers working at Microsoft, Accenture and another Fortune 100 company who were all using GitHub Copilot. The paper concluded that the developers using Copilot completed 26% more tasks than average and the frequency of code compilation rose by 38%. Code quality was not negatively impacted and the less experienced developers were the ones who saw the largest gains in productivity.
These findings suggest AI could have profound implications on productivity; reducing the cost of engineering, enabling these resources to be accessed by companies of all sizes, as opposed to just the largest companies that were the only ones who could previously afford such talent. However, this also means that jobs previously seen as secure and well-paying may become more commoditised over time.
Risks and ethical concerns
Indeed, the widespread adoption of AI does not come without significant risks. One such risk is the acceleration in fake news. The ability for bad actors to create realistic images and videos at speed and at low cost will make it increasingly difficult to separate fact from fiction. Fake news and echo chambers in social media are already huge societal issues, and we are concerned for the potential of AI to exacerbate these issues.
Extending this further, there remains a question mark around intellectual property. If somebody uses AI to create art, music or literature based on existing artist, musician or writer’s style – to whom does this IP belong?
Cyber-attacks are another emerging risk. Palo Alto Networks, a cybersecurity company held in our global and US funds, reported last week that bad actors are already utilising AI to accelerate their cyber-attacks. Finally, there remains the existential threat from AI reaching what is referred to as superintelligence – a currently theoretical concept where AI surpasses human intelligence in all aspects – some are concerned that this could pose significant risks.
Balancing AI’s promise with its challenges
The potential of AI is both exciting and daunting. In our view, it represents one of the most significant technological breakthroughs since the founding of the internet. While the possibilities are vast, it is essential to approach AI development with caution and responsibility. The excitement around AI's potential is reminiscent of the early days of the internet but balancing the benefits and risks of AI will be crucial in shaping a future where technology serves humanity's best interests.
Our current stance is that AI is very similar to the internet: it has the potential to do both great and terrible things. It therefore does not standalone as one of our key 22 sustainable investment themes, instead we look for companies that are using AI to improve their products or services.
Despite this, the investment and growth in this area are likely to remain huge, and the SF Funds do have considerable exposure to this either directly or indirectly. The SF global and US equity Funds are invested in two of the so-called Magnificent Seven (many of which are linked to AI): Alphabet and Microsoft. The remaining five of the Magnificent Seven are not held in the SF Funds as they do not sufficiently meet the required characteristics of our investment process1. The SF Fund exposure to AI outside of the Magnificent Seven is typically through companies that are reducing waste in the supply chain – such as Japanese listed Advantest – or by improving efficiency – such as Broadcom in our US Fund.
Engagement and ethical considerations
In addition to its proactive engagement initiatives, the team will engage with companies on the increasingly relevant ethical challenges posed by artificial intelligence. Some of this engagement will be directly with investee companies but the team also plans to engage more collaboratively with other investors to ensure investee companies map their use of AI systems, actively mitigate risks, and address the broader societal and environmental impacts of AI.
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