NEWS + VIEWS – 12/7/2024
MARKETS
Share markets have been generally positive this week. In the US, Federal Reserve Chair Jerome Powell suggested that interest rate cuts are being considered. Markets are not waiting for the actual cuts and have been rising on expectations.
Domestically we have moved from the usually weak period over May and June (although this year was up) into the typically strong period for shares in July, when significant dividends are paid and then reinvested. The possible ‘fly in the ointment’ for domestic shares may be the upcoming inflation report. The last report for May showed a 4% CPI rate, which is well above the Reserve Bank’s target range.
ARTIFICIAL INTELLIGENCE (AI)
The release of ChatGPT brought the awareness of AI front and centre for the broader population. The ability to generate an in-depth paper through AI is a mainstream application. It is almost standard practice now for report writers in business to start the outline or first draft of a paper or correspondence with ChatGPT or the like. Of course, the actual content of AI generated in-depth arguments does not necessarily stand up to close scrutiny. Reports will reflect the ease or availability of publications and thus the particular views expressed in publications on the internet.
Further to the ‘mainstream’ description of AI, I recently spent an hour listening to a Joe Rogan interview (one of the biggest podcasters in the world) that was entirely generated by AI. The questions and voices from interviewer and interviewee were AI generated and I couldn’t tell the difference between the ‘real’ and the AI generated.
On the domestic business front, the Commonwealth Bank CEO recently advised that pilot projects had shown computer coding efficiencies of around 30% through adopting AI. Some of the drug companies have referred to the use of AI in development phases. Other references by other companies suggests that they are more at the stage of assessing possibilities rather than advanced offerings.
For investors, much of the excitement to date has been reflected in the share prices of major chip makers such as Nvidia and the large technology companies offering AI related services such as Google, Amazon and Microsoft. To be transformative however, one would need to see AI capability intruding into broader business and consumer activities. Also, we would expect a major AI offering to emerge and replace an ‘old’ approach or product.
However, a report from GQG Partners makes the important point that AI is being driven by companies with very deep pockets and large technology platforms (e.g. cloud). This contrasts to the early days of internet startups with few resources. Consequently, we should see a much quicker AI penetration into broader activities.
The chart below shows the responses from Chief Investment Officers regarding plans for AI investment suggesting that AI is still to gain significant traction beyond the major technology companies.
The chart below shows the growth in data globally. The annual growth is up an astounding 74 times since 2010. Much of that data is ‘unordered’ and using the data in a meaningful way becomes burdensome at best. Combined with the growth rate of computing power (up 24 times since 2010), the environment is particularly suitable to AI capabilities to sort, analyse and draw conclusions from the huge amount of data.
Source: GQG Partners
In conclusion, AI adoption is accelerating and that is likely to continue. Efficiencies to be gained will vary from industry to industry and activity to activity. It will not replace all workers (contrary to more alarmist predictions), but it is likely to significantly change some occupations. It will also change the way we do some day-to-day things.
COMPANY NEWS
Bapcor (BAP) knock back offer
BAP announced the appointment of new executive Chairman Angus McKay and at the same time rejected a $5.40 per share cash offer from Bain Capital. The company also announced impending impairment charges related to restructuring the group. The stock is trading at $4.98 per share. Declined offers are often followed by a better offer by the acquiring company.
Gerard O’Shaughnessy
P 0423 771 330
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