The Age of AI: Economic Impact and the AI Investment Universe
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Recent developments in Artificial Intelligence (AI) like breakthroughs in Natural Language Models (e.g. OpenAI’s ChatGPT), and advancements in Deep Learning, robotics and autonomous vehicles have sparked investor interest globally.
While markets are still facing headwinds from the current high-inflation, high-interest rate environment, this excitement in AI has contributed to strong returns for technology stocks year to date. The broader US stock market as represented by the S&P 500, which has a significant allocation to the information technology sector, has also benefited (see Chart 1).
Chart 1: Select Large Tech Companies and S&P 500, YTD returns (%)
Source: Bloomberg. Data as of August 31, 2023. Past performance is not an indication of future results.
It is, therefore, no coincidence that the best performing UITF in the country today1 is a tech-focused one, the Manulife Global Technology Equity Feeder Fund PHP Unhedged share class, earning 39.6% YTD. Our US Equity Fund, Manulife American Growth Equity Feeder Fund PHP Unhedged share class, is also one of the top performing UITFs, earning 24.6% YTD, benefiting from its positive view on the tech sector (see Chart 2).
Chart 2: Manulife Global Technology Equity Feeder Fund and Manulife American Growth Equity Feeder Fund, YTD returns (%)
Source: Bloomberg. Data as of August 31, 2023. Past performance is not an indication of future results.
Is this sudden excitement over AI a true long-term game changer that investors should seriously consider? Or will this just be this decade’s version of the dotcom bubble of the 2000s? To help us understand the impact of AI and what it means for investors, the fund manager of the target fund of the Manulife Global Technology Equity Feeder Fund, Franklin Templeton, recently released an article on the “Age of AI”.
Here are the salient points of the article:
1. Artificial Intelligence is a key pillar of the digital transformation theme, which is driving significant disruption and spurring new growth.
2. While AI has been in development since the 1950s, its adoption has exploded recently. For example, ChatGPT, a natural language model that can understand and engage in human-like conversation reached 1 million users in less than a week, overtaking the speed of adoption of popular platforms like Instagram, Spotify and Facebook (see Chart 3). This evolution can improve existing automated customer service chat bots – increasing productivity in the workplace.
Chart 3: Time to reach one million users for various applications
Source: Statista. Note: *One million backers, **one million nights booked, ***one million downloads.
3. The potential economic impact of AI is estimated to be at US$15.7T by 20302, more than the combined output of China and India. The following will likely drive this economic impact:
- Productivity gains from businesses automating their processes (including the use of robots and autonomous vehicles).
- Productivity gains from businesses augmenting their existing labor force with AI technologies.
- Increased consumer demand from the availability of personalized AI-enhanced products or services.
4. Sectors that will see massive opportunity in incorporating AI are as follows:
- Health Care
- Technology
- Retail and customer service
- Automotive, transportation and education
5. Investment opportunities in AI include companies involved in the following areas:
- Big Data/Analytics
- Semiconductors and Equipment
- Cloud Computing
- Software
While the tremendous opportunities that AI can bring are indeed exciting, investors should always consider their risk appetite, financial needs and investment objectives when deciding to invest in any fund. Alongside this, we believe that long-term investing, diversification and cost averaging are important strategies that investors can leverage to optimize the potential returns of their investments.
Download the full Franklin Templeton article here.
Click here to learn more about Manulife Global Technology Equity Feeder Fund.
2 Source: Rao, Anand S. Verweij, Gergard. “Sizing the prize. What’s the real value of AI for your business and how can you capitalize?” PWC 2017.
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