Plenty of upside left in the AI ‘good story’

My job obliges me to keep in close touch with what’s happening in the world. It requires a large amount of reading: newspapers, magazines, analyst reports, blogs and so forth.

Delving into the world of finance and economics is hardly page-turning stuff and its complexity demands dedication and discipline. Yet, I am the first to admit that I am easily distracted, and often find myself browsing the sports pages or following those links that feature scandalous stories about my boyhood heroes.

Still, I plod away and remain big on analysing headlines. Those big bold letters and accompanying articles have a major influence on market sentiment. When the bulk of comment is bleak, you can bet equity prices will turn negative.

But when those despairing stories no longer have any sway on trading levels, you can safely assume that the bottom of a market has been reached. It will only take one or two positive remarks to swing the trend in the opposite direction.

Naturally the same applies at the top of a market, when most of the good news is already discounted in the value of a share and further affirmation will have limited effect.

This year has been characterised by persistent calls, mostly from leading investments houses and the financial media, that the raised levels of interest rates, elevated input costs and global tension would stifle demand and put pressure on corporate profit.

Accordingly, they forecast a dire year for the world’s major equity indices. Few believed that, in a climate of restrictive monetary policies the S&P 500 and the Nasdaq Composite, two leading gauges of the US market, would be up as much as 18% and 36% respectively.

There was nothing surprising in those cautionary views. They had been peddled relentlessly in 2022 when the US Federal Reserve began its aggressive course of rate hikes. What the doomsters overlooked, or failed to recognise, was the influence of a good news story that captured the attention of the investment public and set financial markets alight.

A year ago, to the day, OpenAI, a nonprofit artificial intelligence research company, released ChatGPT, a computer language that understands everyday chatter, learns from users’ inquiries, and even has a sense of humour. A language destined to transform the way we work, communicate, solve problems, and make decisions.

As we approach 2024, the question market participants are asking is whether AI has the power to tilt the Earth’s axis, or whether its benefits have been overblown by excessive media hype. Businesses, though, are not taking a chance and are already investing large sums of money to incorporate aspects of AI into their operations.

TAKING OFF

Chip giant Nvidia’s Jensen Huang is unequivocal in his outlook for the future of AI. In a presentation that followed his recent results, he told the audience that the era of generative AI is taking off.

The booming demand for his products reflected a transition in the platform industry from general-purpose processing (reviewing data) to accelerated computing and generative AI (generating data). He explained how the first movers were startups and consumer internet companies, but the next waves were starting to build with software companies adding Chatbots and Co-pilots to their platforms and creating customised cloud services (AI factories).

I am not able to distinguish between a CPU and a GPU, and for me a foundry is a grimy factory with a blazing furnace, but I can’t ignore a good story. The extensive press coverage and excitement around the industry suggests there is still plenty of upside left in the theme.