Generative Artificial Intelligence (GenAI) has become a focal point of excitement in recent months. The sector has rapidly evolved, with an increasing number of companies openly exploring ways to integrate this technology into their offerings. Investors have been quick to grasp the enormous potential for monetization that GenAI presents, leading to substantial investments in search of the next billion-dollar enterprise.

Three primary beneficiary groups

Within the AI landscape, we discern three primary beneficiary groups: semiconductor companies, cloud computing providers, and AI enablers/adopters, primarily comprising software firms. While the semiconductor sector offers the most immediate prospects for rapid monetization, each of these clusters harbors both promising and less compelling opportunities. Our distinction lies in separating true AI innovators from those who may have prematurely entered the arena without delivering compelling or innovative products.

The recent strong market performance was propelled by fundamental improvements and a reevaluation of valuation metrics. While valuation metrics look rich from an absolute point of view, they are somewhat justified, given the quality of business models and the boundless potential of GenAI. The foundation is laid for significant future growth.

AI use cases

The scope of AI use cases continues to expand at a staggering rate. AI is poised to enable machines to amalgamate video and audio recognition with speech models and other sensory inputs thus expanding their accuracy and functionalities in domain like autonomous driving and robotics, among others. Our belief in the burgeoning number of use cases across diverse sectors fuels our expectation of a surge in innovation in the years ahead.

However, public sentiment and regulatory oversight could potentially act as brakes on the development and adoption of GenAI. Consider scenarios where AI fails to deliver expected results or is maliciously employed, such as in cyberattacks leveraging AI capabilities.

GenAI’s role in external asset management

Financial intermediaries stand to benefit significantly from the advancements in GenAI. The technology can enhance their portfolio management capabilities by providing robust data-driven insights and predictive analytics. It enables more effective risk management and asset allocation strategies, ultimately translating into improved client outcomes and satisfaction.

While the surge in all things AI has been robust thus far, our constructive outlook on the theme remains steadfast. This is underpinned by our belief that the drivers behind AI’s growth remain robust, with innovation accelerating, monetization opportunities ripe, and earnings expectations on an upward trajectory since the year began.

In conclusion, the excitement surrounding GenAI is well-founded, and we foresee it continuing to reshape various industries and foster innovation. Financial intermediaries, in particular, can harness the power of GenAI to enhance their investment strategies and client services. However, the path forward may not be without challenges, as public perception and regulatory considerations come into play. Despite these potential roadblocks, the AI landscape appears poised for continued growth and advancement, offering compelling opportunities for investors, stakeholders, and financial intermediaries alike.