Within popular culture, AI has typically been portrayed to have various levels of human intelligence and motives, but ultimately these portrayals reflect the fears, concerns and curiosities about the impact of AI on human society.
In reality, AI technology today is about applying statistical models to large datasets and obtaining useful and actionable insights. Rather than emerging as a separate new industry or field, AI and its applications are foundational technologies.
While AI chatbots have been around for a while, we believe the recent demonstration of ChatGPT’s superior features are generating much more interest around deeper and wider use cases.
Impact of AI
Generative AI models are based on Large Language Models (LLMs), which predict words or a series of words that comes next in a sentence – most of our messaging apps and search engines use LLMs to a great degree. Machine Learning (ML) transformer models are used in conjunction with LLMs to learn context and meaning by tracking relationships between words in a sentence.
Exhibit 4: What can transformer models do?
Source: Nvidia blog, https://blogs.nvidia.com/blog/2022/03/25/what-is-a-transformer-model/
Widespread adoption of AI technology could lead to a positive step change in economic productivity levels as this foundational technology can affect a broad segment of the economy and society, akin to an “Industrial Revolution”.
As with most technologies that generated productivity improvements, generative AI technology could be used by content creators in “automating” mundane, repetitive and less value-added parts of their work e.g. typical financial reporting in a financial earnings report, while allowing humans to focus on delivering deeper insights and analysis.
The economics of AI
Drawing upon various industry statistics and market research, we believe AI and its associated technologies have the potential to disrupt and/or capture a market worth a total of around USD920 billion today.
Global search advertising market
The introduction of generative AI into the global search engine business by Bing has led to increased search relevance and targeted results, challenging the dominance of Google in the search advertising market. Given the utility of this technology for search users, generative AI could add some incremental growth to the search advertising market.
Other online advertising markets
Content generation tools built on generative AI technologies can provide an edge to the growth and dominance of other online advertising markets such as social media and e-commerce. As the underlying business model of social media is to vie for the attention of users, the better the quality of generative AI tools available to users, the stickier users will be to a specific platform.
Within platforms, premium features based on generative AI technology could be offered to content creators for a fee, to allow them to customise their content quickly to cater to different target audiences.
Online advertising, especially when integrated with AI technology, can be very much personalised to the target audience – giving much better value to advertisers.
Software-as-a-Service (SaaS)
Shifting enterprise workloads to cloud due to the adoption of AI technology and new features integrating AI is likely to accelerate the growth of enterprise SaaS solutions over the next 5 years. The utilisation of AI technology can improve revenue streams and increase productivity through automation, boosting corporate spending on generative AI technology.
As AI technology permeates through the economy, businesses that lag in AI technological adoption are likely to face increased risks of becoming less competitive.
Cloud computing infrastructure market
Adoption of generative AI technologies will supercharge the growth of the market leaders in public cloud services. This is because the economics and quality of large AI models are a scale problem – the larger the trained dataset, the better the quality of the AI model.
The mass adoption of AI technology helps to consolidate the public cloud market amongst the major players and accelerates the penetration of public cloud into enterprises.
AI semiconductor (chip) market
Presently, industry experts believe that AI hardware can train up to 1 trillion parameters economically, and we expect AI model training to get more complex as hardware capabilities improve going forward. This will drive increased demand for technologically more advanced GPUs.
As generative AI applications grow, this will increase workloads for AI inference. In contrast to AI training, throughput processing (large amounts of data processing) is less important than the speed at which the result is communicated to the user for AI inference.
China’s market
Given the relatively closed-off nature of China’s internet ecosystem, dominance of China internet players versus the lack of presence of the global players within the country, and the government’s preference for regulation of online content, we believe China’s AI beneficiaries would be different from other markets.
However, while the beneficiaries are likely to be mainly Chinese companies, the opportunity set is likely to be similar to what is presented to the global players. More targeted and effective search and social media advertising, productivity gains in digital content generation and business operations, and cloud computing infrastructure penetration are the opportunities for the growth of Chinese AI market.
Overall, we believe AI and its associated technologies have the potential to disrupt and/or capture the global market. As AI technologies require scale and quality of data, strong talent in research and large investments into hardware, we believe the major beneficiaries of this trend will be major technology players who have the balance sheet for investment into the sector, and can develop and deploy these technologies at scale. Smaller players who can benefit will be those that can develop their own niches, and/or ride on trends together with the larger players.
The next bull market for the tech sector will likely be driven by the structural trend of rising AI adoption across the world.
