OPINION

ChatGPT is changing the world as we know it, leaving some companies in its wake – but what’s the best investment option to capitalise on this new wave of technology-led disruption?

Dan Rosenweig, CEO
of online education company Chegg, recently painted an alarming picture for investors.

Chegg provides homework help, digital and physical textbook rental, online tutoring and other student services.

Speaking to analysts on the latest earnings call, he said the significant spike in student interest from ChatGPT is impacting Chegg’s ability to get new customers, as students opt to use the AI tool for assistance with homework instead.

The statement sent the stock tumbling, closing down 48 per cent in a single day and casting a shadow over the future of the company.

AI is in its infancy, but is already causing reverberations across many industries, capturing the minds and imaginations of scientists, politicians, and corporations, and bringing terms like ChatGPT to the forefront of public consciousness.

While it may be a blessing for many companies, potentially enabling significant productivity boosts, some may face existential risks to their business models.

New gold rush

Investors hoping to capitalise on the AI boom need to look no further than the gold rushes of the 19th century to figure out the best investment strategy.

Just as it was on the riverbeds of California, Victoria, and Otago in the 1800s, the best business was not in panning and digging for gold but rather in selling the miners the picks and shovels to do so.

Back then it was Levi Strauss and Jacob Davis who were in the box seat, but today with AI it’s the companies selling the tools and services that support the growing AI industry. With an early lead, Amazon, Google and Microsoft are well placed to play the enablers and backbones of the AI revolution.

Many companies have already been using AI for computational and quantitative tasks.

JPMorgan Chase bank and Mastercard are using AI to automate tasks like fraud detection and risk assessment, freeing up employees to focus on other things, and Netflix is constantly developing new AI-powered features to improve its recommendation engine.

The big recent innovation has been the wave of releases of Large Language Models (LLMs) such as ChatGPT. LLMs have moved AI beyond just numbers and quantitative tasks into language, creative content creation, and replicating human interactions.

Productivity software stands to benefit substantially.

For example, GitHub, Microsoft’s coding platform, rolled out its AI feature named Copilot, which aids developers’ code writing by offering autocomplete-style suggestions as they code.

There has often been a talk of “10x super developers” who are 10 times more productive than the average developer.

GitHub CEO Thomas Dohmke strongly believes 10x developers can become widespread, saying: “With AI at every step, we will realise the 10x developer.”

Some business models could be upended by the technology

Chegg is one example of an early company impacted by AI, and companies with a large component of repetitive and manual tasks are also likely to be impacted.

Industries previously requiring people with specialist skills, such as copywriting and website design, can now use AI to help complete these tasks in minutes, rather than days or weeks.

Instead of using a copywriter, simple prompts can be fed into Word Copilot to generate full articles and content for publishing and advertising. Websites can be built simply by taking a photo of a hand-drawn website design and feeding this into an AI model.

This isn’t necessarily a negative for these industries if they can use the productivity gains on more mundane tasks, and spend more time on value-add activities.

Satya Nadella, CEO of Microsoft, believes AI could enable “every developer to focus all their creativity on the big picture: building the innovation of tomorrow and accelerating human progress, today”.

The largest beneficiary from AI will be the cloud computing companies.

AI is computationally intensive. One conversation on ChatGPT costs only a few cents but when used by billions of people many times over, this cost escalates exponentially, and estimates put the daily cost at over NZD$1 million per day.

The lure of Azure

Amazon AWS, Microsoft Azure and Google Cloud Platform dominate the cloud computing market and AI has expanded their horizons significantly.

Only a handful of companies ultimately have the scale and ability to provide the computing infrastructure to host AI applications. Both Amazon and Azure have made large investments in building their own AI specific chips for training and running AI models more efficiently – something smaller competitors are unlikely able to replicate.

These three providers are best positioned to capture the lion’s share of AI workloads, either through licensing their own AI models or providing the computing musclepower to host AI models from others.

Right now, AI is like the internet in the 90s, before smartphones, app stores, streaming and social media were on the radar of most people.

Current commercial adoption remains relatively low but there are unlimited use cases. Being invested in the picks and shovels like AWS, Azure and Google Cloud Platform could offer the greatest likelihood for success regardless of which platform or AI model dominates.

Like in the infancy of the internet, we can only guess what AI’s ultimate size, impact and application will be, but what we do know is companies will have to adapt to harness the power of AI or risk being left behind.

– Daniel Moser is an investment analyst at Fisher Funds

Disclaimer: The information and opinions provided here are of a general nature, and not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.