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The wait is over for investors who have been anticipating the next big thing in technology, according to BlackRock’s Reid Menge. Generative artificial intelligence (AI) is here ― and the investment opportunity is now.
While 2022 was a dismal year for technology stock returns, BlackRock Fundamental Equities Portfolio Manager Reid Menge – who specializes in tech investing – suggests it was a landmark year for breakthrough innovation in the industry.
One of the most significant, in his estimation: generative artificial intelligence (AI).
“Technology is an industry that is driven by innovation. We had the internet in the 1990s, cloud computing in the 2000s, mobile in 2010. The 2020s are the decade of generative AI. This is the ‘what’s next’ that we’ve been waiting for.”
What is generative AI?
In simplest terms, generative AI is artificial intelligence that creates ― and knows virtually no limits in its capacity to do so. It can write text, draw pictures, compose music and develop code of any complexity.
“Not only does it create content, but it does so at a superhuman level,” Mr. Menge says, noting that a picture of anything in any artistic style can be requested in writing and generated in a matter of seconds.
At the forefront of this revolution is ChatGPT, technology that has recently made headlines for its success in passing law and business school exams and attempts to create a market-beating ETF.
Microsoft’s text-to-speech model of generative AI can simulate with remarkable precision a human voice orating any written text.
The buzz around generative AI is the most Mr. Menge has seen since the iPhone was launched in 2007.
Early days and applications
The capabilities and application of generative AI are in the first stages of being realized. Mr. Menge notes that the amount of compute used to train these AI models is doubling every two to three months. “ChatGPT is nearly as smart as the human brain today and doubling that aptitude every three months and with the computational horsepower being used to train these AI models, imagine the capabilities of these generative AI services by 2025.*”
Source: BlackRock
The utility of this technology for global corporates is endless, in Mr. Menge’s assessment, and has the potential to be extraordinarily deflationary (reducing labor costs while increasing productivity). He could see human labor potential being destroyed and/or redirected as more jobs are performed by these AI models and new human skillsets are required to run and advance them.
Where is the investment opportunity?
Generative AI technology requires significant computational power to run the necessary data sets and to train the data models to perform tasks and create content. This will drive enormous demand for semiconductors, especially the types that are optimized for peak workloads. Mr. Menge observed just three weeks into January that key semiconductor players that lean into this theme were already up 15%-20% to start the year.
As more powerful semiconductors are used to fuel the generative AI revolution, we see this driving an upgrade cycle for other areas of data center infrastructure, including networking and data storage.
What does it mean for the technology sector?
According to Mr. Menge: “It’s hard not to see an explosion of growth and value creation in the technology sector over the next couple of years from this ― and the stock market has yet to realize it.”
This may bring some optimism to weary technology investors after 2022 delivered the sector’s worst year since the dot-com crash more than two decades ago. It does to Mr. Menge, who takes a long-term approach to investment in a sector that he believes is critical to powering the economy forward.
Generative AI is the most revolutionary tech since the internet ― and it’s here now.
Reid Menge
BlackRock Technology Equity Team
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