Investment opportunities in generative AI

Effectively, the main function of generative AI is to make predictions. With text generation tools like ChatGPT, AI is anticipating the best next word in a sentence. Its guesses are based on a large language model it uses to put words together in a way that makes sense.

Productivity

Generative AI is expected to improve worker productivity by simplifying routine tasks so users can focus on more strategic ones. The most visible example of this is Microsoft. In the near future, products such as Microsoft Office will incorporate ChatGPT Opens in a new window..

Online search

Generative AI should enable consumers to ask more detailed questions and get more comprehensive answers. This has the potential to transform advertising by making it more targeted and increasing the monetary potential of each online interaction.

Services

Generative AI stands to restructure the way in which businesses unlock and make use of the data they collect, to better interact with and serve customers.

From an investment perspective, the challenge is to identify the companies best positioned to provide the hardware and software infrastructure to support this paradigm shift. The key to this is being able to distinguish how much of this disruption is hype versus reality.

Though this question can really only be answered in hindsight, some context is helpful. Technology disruption has been driving productivity for the past several decades, doubling computational power roughly every two years. Technological disruption happens because the underlying technologies have progressed to the point where it becomes practical, and in some cases inevitable.

Second, people often assume disruption is a function of how compelling a new technology is, but history suggests it’s more about how much friction is in the path of customer adoption. Generative AI doesn’t require a drastic change in behaviour, other than to ask questions. This suggests low friction and a long runway for sustainable growth.

If you’d like to discuss this insight in more detail or have questions about your investment portfolio, please contact your advisor or CIBC representative any time.

This article is based on content that was originally created for CIBC Asset Management: 

• Advisor to Go podcast Opens in a new window.
• Market Spotlight (PDF, 710 KB) Opens in a new window..