Unleashing GenAI: A Revolution in Practical Magic

Jul 31, 2023

Note: The image above was generated via an GenAI app with the prompt: “An oil painting by Van Gogh, with a robot playing chess”.

Anything New Under the Sun?

As the buzz around ChatGPT and other AI-powered chatbots has spread like wildfire, one might understandably wonder, “What’s the big deal? Whether it’s the HAL 9000 or IBM’s Watson, we’ve been sold this story before, right? And by the way, where’s my flying car?” In truth, the term “AI” has become somewhat nebulous and is frequently misused as a catchall phrase that fosters skepticism about the actual advancements it brings.

Generative AI, or GenAI, represents a leap in the field of artificial intelligence. It is a technology that empowers machines, particularly “large language models” like ChatGPT, to create original content, imitating human creativity and problem-solving. Compared to its predecessors, GenAI possesses the capability to produce entirely new and coherent content, unlocking a wide range of potential applications. In other words, Generative AI is akin to spit balling with an imaginative friend capable of producing fresh ideas, while other AI is more analogous to a helpful guidebook that is constrained to following specific instructions.

Real World Wonder

For most people, taking OpenAI’s ChatGPT or Alphabet’s Bard for a spin has served as their first interaction with GenAI. With the flexibility to edit your wedding speech, explain concepts at varying degrees of complexity, or write computer code, these chatbots rarely fail to impress and are mostly limited by the quality of the user prompt. The unprecedented viral adoption of ChatGPT is a testament to the program’s ease and accessibility. It took a mere two months for ChatGPT to reach 100 million active users, a remarkable feat that took nine months for TikTok, 30 months for Instagram, and over four years for Spotify.

Dude, Where’s My Job?

While the arrival of GenAI holds immense potential for the future of human society, it has also been perceived as disconcerting and a threat to our professional livelihoods. Yes, AI is a powerful tool capable of augmenting human ingenuity and capabilities. Think of it as having a world-class educated assistant available 24/7. It is easy to see how the C-suite in countless firms would be excited about the potential efficiency and productivity of its new AI-enabled labor force.

But the offloading of tasks that people used to perform to earn a paycheck will undoubtedly reshape the job landscape and the way we work. (Look no further than the writers and actors in Hollywood concerned about AI replacing a large portion of the workforce.) Furthermore, while integrating AI into the new office tool set may lead to higher-level and more intellectually demanding work for some, relying on AI without human oversight potentially leaves room for unforced errors. If the data that AI is using to learn is incomplete or even worse, biased, the result may be inaccurate.

Investing in the AI Economy

The past suggests that during the early days of a new technology wave, it is often the large incumbents who are best positioned to benefit. Furthermore, early products that are built with the new technology are often iterations on existing products (e.g., ChatGPT is, arguably, an improved version of Google Search). To date, the conventional way to invest in the GenAI theme has been through large tech platforms, such as Microsoft, Alphabet and Adobe, that are well positioned to leverage AI alongside their proprietary data to enhance existing products. Chipmakers such as Nvidia and AMD, who sell the proverbial picks and shovels for AI computing, also stand to benefit from surging demand.

However, history also proves that new industries can and do evolve in unpredictable ways, often creating opportunities for new giants to emerge and develop into household names. For instance, back in 1990, hardly anyone could even conceive of Internet Search as anything more than science fiction. Five years later, as the Internet really took off, dozens of search engine companies emerged. And Google, the eventual winner, wasn’t launched until 1998.

With respect to consumer-facing AI-powered chatbots, OpenAI has carved out an early lead with its release last fall of ChatGPT. And yet it’s not clear whether there will be any durable moats around these large language models on a standalone basis, or if instead they will prove to be more useful as an integrated feature within a larger platform.

Big Tech will continue to garner the lion’s share of the headlines for now, but over time GenAI technology will likely disperse to a much broader set of industries, leading to opportunities for investors in many sectors in addition to technology.

By Scott B. Wilson