Artificial Intelligence (AI) is a transformative force reshaping the global economy. Tony Kim, portfolio manager of BlackRock's technology equity strategies, calls it the "single biggest change and driver of growth in the global economy". Recent developments in AI have made some investors question their assumptions, but we see AI as a long-term growth opportunity with significant implications for investors. Here, Kim explains why.
The intelligence revolution
Kim describes the current AI trend as an "intelligence revolution”, transforming industries, creating new opportunities, and driving economic growth.
For investors, this means that AI is not a fleeting trend but a fundamental shift shaping the future. Companies harnessing AI will lead innovation and growth, making them attractive investment opportunities.
Scaling laws of AI
One of the critical aspects of AI development is the concept of scaling laws. Kim explains that the first phase involved training AI models with vast amounts of data, but this phase is nearing its limits as human data on the internet is nearly exhausted. The next phase, called test time compute or inference, involves AI models continuously learning and reasoning from new information.
This shift from training to inference is crucial for investors to understand. Companies that are at the forefront of these new scaling laws are likely to be key players in the AI revolution. Investing in these companies can provide long-term growth potential as they continue to innovate and push the boundaries of AI.
The rise of synthetic data
As human data becomes scarce, synthetic data is emerging as a solution. Kim believes that the rise of synthetic data is a crucial development in the next phase of AI. Synthetic data will enable AI models to continue learning and improving without relying solely on existing human data.
For investors, this means that companies developing and utilizing synthetic data effectively may gain a competitive edge in the AI landscape. Investing in these companies can provide exposure to the next wave of AI advancements.
Future potential of AI
The future potential of AI is immense, with the possibility of achieving artificial general intelligence (AGI) and artificial super intelligence (ASI). AGI refers to AI surpassing human intelligence, while ASI represents a further step where AI systems become fully autonomous. While there is no immediate timescale, Kim believes that "we are soon beginning on these new scaling laws, and this is what's going to get us to AGI and ASI".
For investors, the implications are profound. As AI evolves, we believe it will lead to groundbreaking innovations and attractive investment opportunities. Companies pioneering AI development will be at the forefront, enabling opportunities for competitive long-term investments. While mega caps led early AI stages, growing development and broader end markets will spur competition, offering more investment opportunities beyond the usual names.
A mega force that can’t be ignored
Despite the sector’s geopolitical significance, technology thrives on innovation. Kim emphasizes that “Government policy is not an investment strategy,” and the focus should remain on innovation and long-term growth opportunities. Given the economic importance of technology and countries’ desires to gain a competitive advantage, we believe the policy outlook should provide a tailwind for the sector.
The AI revolution is here, and it is a long-term growth trend that investors cannot afford to ignore. From the intelligence revolution to the rise of synthetic data and the future potential of AGI and ASI, AI is transforming industries and driving economic growth. By understanding the key themes and implications of AI, investors can make informed decisions and capitalize on the transformative potential of this technology.
