From The Economist:
Technology stocks are having a bumper year. Despite a recent wobble, the share price of the Big Five—Alphabet, Amazon, Apple, Meta and Microsoft—has jumped by 60% since January, when measured in an equally weighted basket (see chart 1). The price of shares in one big chipmaker, Nvidia, has tripled and in another, amd, almost doubled. Their price-to-earnings ratios (which measures how much the markets think a company is worth relative to its profits) are ten times that of the median firm in the s&p 500.
The main reason for the surge is the promise of artificial intelligence (ai). Since the launch in November of Chatgpt, an ai-powered chatbot, investors have grown ever more excited about a new wave the technology that can create human-like content, from poems and chunks of code to video footage. This “generative ai” relies on large-language models which are “trained” on big chunks of the internet. Many think the technology could reshape whole industries and have as much impact on business and society as smartphones or cloud computing. Firms that can make the best use of the technology, the thinking goes, will be able to expand profit margins and gain market share.
Corporate bosses are at pains to demonstrate how they are adopting ai. On April 4th Jamie Dimon, JPMorgan Chase’s boss, said his bank had 600 machine-learning engineers and had put ai to work on more than 300 different internal applications. David Ricks, the boss of Eli Lilly, has said that the pharmaceutical giant has more than 100 projects on the go using ai. Howard Schultz, who recently stood down as boss of Starbucks, had said he planned to invest $1bn to use ai to figure out how to make the perfect vegan breakfast sandwich to accompany the coffee the firm sells.
Company case studies reveal only part of the picture. To get a broader sense of which companies and industries are adopting ai The Economist examined data on all the firms in the s&p 500. We looked at five measures: the share of issued patents that mention ai; venture-capital (vc) activity targeting ai firms; acquisitions of ai firms; job listings citing ai; and mentions of the technology on earnings calls. Because other types of ai could bring benefits for business, our analysis captures activity for all ai, not just the generative wave. The results show that even beyond tech firms the interest in ai is widespread and growing fast. Moreover, clear leaders and laggards are already emerging.
Start with the growing interest. ai expertise already seems to be spreading widely. About two-thirds of the firms in our universe have placed a job ad mentioning ai skills in the past three years says PredictLeads, a research firm. Of those that did, today 5.3% of their listed vacancies mention ai, up from a three-year average of 2.5%. In some industries the rise is more dramatic (see chart 2). In retail firms that share has jumped from 3% to 11%, while among chipmakers that proportion grew from 9% to 19%.
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The number of ai-related patents trended up between 2020 and 2022, based on data provided by Amit Seru of Stanford University. PitchBook, another research firm, concludes that in 2023 some 25% of venture deals by s&p 500 firms involved ai startups, up from 19% in 2021. GlobalData, also a research firm, finds that about half the firms scrutinised have talked about ai in their earnings calls since 2021 and that in the first quarter of this year the number of times ai was mentioned in the earnings calls of America Inc more than doubled compared with the previous quarter. Roughly half been granted a patent relating to the technology between 2020 and 2022.
The use of generative ai may eventually become even more common that other sorts of ai. That is because it is good at lots of tasks essential to running a firm. A report by McKinsey, a consultancy, argues that three-quarters of the expected value created by generative ai will come in four business functions—research and development, software engineering, marketing and customer service. To some extent, all these operations are at the core of most big businesses. Moreover, any large company with internal databases used to guide employees could find a use for an ai-powered chatbot. Morgan Stanley, a bank, is building an ai assistant that will help its wealth managers find and summarise answers from a huge internal database. slb, an oil-services company, has built a similar assistant to help service engineers.
While the adoption of ai is happening among many firms some are more enthusiastic than others. Ranking all the companies using each metric and then taking an average produces a simple scoring system. Those at the top seem to be winning over investors. Since the start of the year, the median share price of the top 100 has risen by 11% while for the lowest-scoring quintile it has not moved at all.
Link to the rest at The Economist