By Maurice Stouse, Financial Advisor and Branch Manager
Innovations and industrial revolutions might bring a lot of opportunities for the economy and the people of the world. Today, investors can’t go a day without hearing the latest news on artificial intelligence, or AI. Many might be wondering if they need to incorporate this into their investment plans. We think investors should always consider innovation, invention and productivity, among other things when considering investing for their future. We feel that stocks (along with the risk) provide investors with the greatest opportunity to grow and compound their assets. So, what should investors be thinking about when it comes to AI?
What is AI?
Artificial intelligence, per Microsoft Bing is “the theory and development of computer systems able to perform tasks that normally require human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.”
Who is developing it? While certainly not limited, investors would recognize such firms as Microsoft, Google, IBM, and Apple, among others. There is even a firm called OpenAI which has developed an online program called ChatGPT. What do people find when they go there? That tool can answer questions, provide information and generative AI can create songs, contracts, lesson plans, and a host of other things. There are producers of chips that can help make AI work, firms like Nvidia and Advanced Micro Devices as other examples.
AI has been put to the test with college and graduate entrance exams as well as the exam to become licensed and registered in the financial securities industry. The results have reportedly been mixed on those attempts.
Will the innovation of AI bring about another industrial revolution? Should investors be prepared for that?
The Economist magazine, in its May 13 issue, addressed that. It pointed out that while past industrial revolutions brought about change two things also occurred: 1) It took much longer than originally thought (decades for example) and 2) while it boosted productivity, in some cases it was only marginal. One example was the advent of the locomotives to power the movement of freight. It was pointed out that the nation’s productivity could have done just as well with the current methods and with additional waterways or canals for the mass movement of goods and services. In other words, the boost in productivity proved to be marginal. Also take note that while many jobs go away, many more jobs are created. The World Economic Forum predicts that 97 million jobs could be created while 85 million might go away. Goldman Sachs reported that generative AI could raise global GDP by 7 percent, a very significant effect for any single technology. Many of today’s technology jobs didn’t even exist just one or two generations ago. And some jobs may take decades to go away. The Economist takes note that telephone operators continued to grow in number even after the advent of advanced phone technology.
Manufacturing, too, may be transformed by AI. The manufacturing sector is facing many challenges, including sustainability, a shortage of skilled workers, and geopolitical instability. The World Economic Forum notes that AI can help by improving productivity and efficiency, while increasing flexibility and augmenting the workforce. Yet today, only about 9 percent of manufacturing organizations are leveraging AI today. What are the implications for workers, revenues, and the bottom line of profits? Technological advances also bring about an acceleration in output, think gross domestic product or GDP. Many risky jobs might be able to be done with machine vs man. Lawyers, medical professionals, and accountants – cognitive workers – might see some of their work done by AI. Unlike most advances in automation in the past, AI is a machine of the mind affecting that work. A recent research paper found that the Large Language Models like ChatGPT (LLMs) could affect 80 percent of the U.S. workforce in some form. Less complex work – e.g., case prep, procedures, tax returns – will lower cost for clients and legal cases. Implications for training: Medical procedures can become more precise and hence more effective. That could mean getting more done and becoming more organized, efficient, and profitable. That could boost industries across the entire stock market.
There are 11 sectors of the market: Consumer staples, consumer discretionary, financials, health care, energy, real estate, materials, industrials, utilities, communication services, and, of course, technology. We can’t think of an industry, sector, business or person that would not benefit from the advancement of AI. So, in conclusion, we encourage investors to think about the opportunities across the economy, not just the makers and distributors of AI. We think, over time, companies will see job creation (acknowledging that many will go away), new products and services, greater revenues and, if managed well, greater profits. We think that the world will continue to see affluence build and problems solved and standards of living enhanced. While today’s problems seem plentiful, the quality of life (mortality, health, wealth) has continued to grow. For children born today, there is an incredible opportunity that awaits them. Whether still in the workforce, or retired, the quality of life can only continue to grow.
In the end, attaining any goal means building a plan and investing according to that plan and trying to lower personal biases as well as the noise from the media. Someone was heard to comment on Bloomberg TV this past week that if you listen to all the talk about the markets all day, you will believe that the world is coming to an end by sundown. Expect that investing at times like these can be more volatile due to debt ceiling, banking, international and economic issues.
Diversification and asset allocation does not ensure a profit or protect against a loss. Holding investments for the long term does not ensure a profitable outcome.
Maurice Stouse is a Financial Advisor and the branch manager of The First Wealth Management/ Raymond James. Main office: The First Bank, 2000 98 Palms Blvd, Destin, FL 32451. Phone 850.654.8124. Raymond James advisors do not offer tax advice. Please see your tax professionals. Email: Maurice.stouse@raymondjames.com.
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC, and are not insured by bank insurance, the FDIC or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank, and are subject to risks, including the possible loss of principal. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. The First Wealth Management and The First Bank are not registered broker/dealers and are independent of Raymond James Financial Services.
Views expressed are the current opinion of the author and are subject to change without notice. The information provided is general in nature and is not a complete statement of all information necessary for making an investment decision and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results.
