Tony Roth is CIO for Wilmington Trust Investment Advisors, Inc, the investment advisory arm of Wilmington Trust and M&T Bank.
Over the past 70 years, artificial intelligence has evolved into a transformative social and economic force, especially with the recent rise of generative AI, creating a wealth of opportunities for investors through its rapid expansion and adoption.
Access to massive amounts of data, together with more affordable and powerful microprocessors and advancements in algorithms, have contributed to AI’s notable growth and impact.
AI is also increasingly being integrated into business processes and technologies, impacting everything from how healthcare professionals manage their patients, to how investors manage their portfolios. The AI market has become an economic driver that has the power to reshape the business landscape and, indeed, the overall economy.
Opportunities And Challenges
In industries with a plethora of manual tasks, such as healthcare and finance, processes have become more efficient and accurate thanks to AI. Large language models have improved how document analyses and management are conducted, which helps organizations reduce errors and speed up workflows, allowing employees to be more strategic.
Take a look at manufacturing as an example. AI-powered predictive maintenance has been a game changer, offering insights into potential issues with machinery before they escalate into larger, more costly problems.
Despite the overwhelmingly positive effect on productivity, many professionals remain concerned about what AI’s impact will be on the job market. Although AI may replace certain human jobs that require heavy manual processes, it also has the power to create new opportunities for jobs in tech, engineering and data-driven fields.
The AI revolution also requires new skill sets, leading to new workforce opportunities. Overall, I believe that AI will serve to enhance the job market and the level of per-capita productivity of the domestic U.S. economy.
AI also has the power to transform our quality of life. From improving healthcare diagnostics to eliminating repetitive tasks, AI can make our lives less burdensome and more efficient. These benefits are often not counted in the raw GDP calculations, but should not be ignored.
AI Investment Landscape
As of this writing, tech has been flat for the past week. As for the longer term, the industry is up 54% over the past 12 months. Looking forward, earnings are forecast to grow by 18% annually.
Some investors have even suggested that interest rate stress doesn’t impact tech stocks like other sectors, given the momentum and growth we’re seeing across some of the tech giants.
Investment Strategies And Opportunities
Several key factors have fueled AI’s rapid expansion, including a surge in demand for AI technologies, in addition to an influx in the availability of venture capital funding, which has led to advancements in AI research and development.
From a short-term investment standpoint, companies that are developing AI technologies, building AI infrastructure such as semiconductor manufacturers or providing the necessary tools to build AI solutions are leading the charge.
The increased use and accessibility of LLMs require enormous levels of computational power, which has led to an increase in demand for these resources. Data and security organizations are also important since they provide solutions to build the foundation of AI models through organized and secure data management capabilities. The rise in generative AI has also brought to light heightened concerns around cybersecurity, further boosting the demand for robust security solutions.
From a long-term investing perspective, the companies that come out on top will be those that are successfully leveraging AI technologies and developing proprietary solutions. In our 2024 Capital Markets Forecast, we stated that the nations that focus on AI development and implementation are expected to be the leaders in the coming decade.
We still believe this to be so.
Investment Risks
With great opportunities typically comes notable risks.
One of the main risks is whether AI can really deliver the productivity gains described above across the entire economy. To a large degree, AI’s impact has been concentrated in documentation-intensive sectors, and whether other AI applications will materialize quickly enough to broaden the AI impact has yet to be seen.
Another potential roadblock is the lack of high-quality data needed to train AI models, in addition to the hefty costs associated with developing and implementing AI solutions. Many companies are deterred by the need for substantial financial investment and the difficulty of accessing the necessary data.
Future legislation could also potentially impede AI adoption and put modifiers on its use cases. As regulatory bodies work to address the ethical and security implications, future regulations will likely modify how AI is used.
The complexity and continued advancement of these solutions has come with increased concerns about privacy, security and social equity, posing potential risks to sensitive sectors such as healthcare and financial services.
Also of great consequence is the energy consumption that AI demands. Both from an environmental and feasibility standpoint, this issue will need to be reckoned with as the future of AI takes shape.
Lastly, while the AI sector has attracted considerable investments over the past few years, underlying risks remain that many of these opportunities may turn out to be overvalued, especially in the short term. As we continue to see the AI industry evolve, a balanced and informed investment strategy will be key to navigating challenges and risks.
While AI offers significant advancements and efficiencies across various sectors, it also comes with challenges such as regulatory uncertainties, data quality concerns and potential market overvaluation. To be best positioned to navigate this evolving landscape, investors must balance the benefits of AI-driven growth with a cautious and informed approach.
This article is for general information only and is not intended as an offer or solicitation for the sale of any financial product, service or other professional advice. Wilmington Trust does not provide tax, legal or accounting advice. Professional advice always requires consideration of individual circumstances. Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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