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Opening Gates: AI is as revolutionary as the internet

In my lifetime, I’ve seen two demonstrations of technology that struck me as revolutionary ... For decades, the question was when computers would be better than humans at something other than making calculations. Now, with the arrival of machine learning and large amounts of computing power, sophisticated AIs are a reality, and they will get better very fast.”

Bill Gates, Founder Microsoft, The Age of AI Has Begun

***

Most people can recall their first experience with a new piece of technology that changed how they lived or worked. I remember the excitement of watching satnav in a car, the first decent computer in the home and office, the beginning of email at work and the wonder of a smart phone with a screen in your hand. As Head of New Issues at CBA, we acquired the first fax machine in the entire bank to allow documents for Eurobond issues to travel to London and back overnight. It cost $7,000 and filled a small room, and people came from around the Bank to gaze at it. We take all these innovations for granted.

And now a bigger technology is unfolding before our eyes. We have scratched the surface on what Artificial Intelligence (AI), ChatGPT and the like will achieve, and how it will change our lives.

The simplistic view is that OpenAI can write answers, stories or legal documents and journalists and lawyers should fear for their jobs. Play around with OpenAI, ask it some questions, and indeed, it will amaze. In 2022, Bill Gates reviewed the technology in the way many of us have, and was awestruck.

“In September, when I met with them again, I watched in awe as they asked GPT, their AI model, 60 multiple-choice questions from the AP Bio exam - and it got 59 of them right. Then it wrote outstanding answers to six open-ended questions from the exam. We had an outside expert score the test, and GPT got a 5, the highest possible score, and the equivalent to getting an A or A+ in a college-level biology course.

Once it had aced the test, we asked it a non-scientific question: “What do you say to a father with a sick child?” It wrote a thoughtful answer that was probably better than most of us in the room would have given. The whole experience was stunning.

I knew I had just seen the most important advance in technology since the graphical user interface.”

Bill Gates has been at the forefront of watching AI since 2016 and he sees considerable potential:

1. Productivity enhancement

There will always be jobs where humans are better than AI but tasks such as sales (digital or phones) and document handling (payables, accounting, insurance) will be handled by AI. Its ability to express ideas will be like having an assistant to help, such as writing emails and managing email. Gates argues that when productivity rises, society benefits because people are free to do other tasks. This is an optimistic outlook as many will also be left behind.

2. Health and equality

Healthcare staff spend an inordinate amount of time on measuring, filing, insurance, paperwork, taking notes and record-keeping, and AI will streamline most of this. Gates works full-time on philanthropy and sees much potential in poor countries for people who cannot visit a doctor. For example, AI-powered ultrasound machines can be operated by someone with little training. Diseases can be identified remotely. Gates sees a future advising people in poor countries on crops or livestock, better seeds for local conditions, soil and weather information, drugs and vaccines for animals.

3. Creation of a personal agent

A personal agent will help with scheduling, communications and e-commerce across all devices. We will need to work out how much we allow the agent to make decisions for us, such as what to buy and what to tell other people.

4. Education

Gates says computers have not delivered the widespread gains in education that he hoped, but  AI-driven software promises a revolution in teaching and learning. Content can be increasingly tailored to specific children or communities, understanding can be measured, and motivation and weaknesses monitored. It might give advice on career planning.

The investment implications, with a warning

The market is recognising this potential with massive enthusiasm, and as always happens in equities, there will be overreactions. At some point, as too many investors jump into the same idea and hedge funds algorithms follow the trends, prices will be pushed beyond reasonable valuations. It is the nature of markets and the human condition, as happened in 2000.

In the current market, anything written about the stock at the height of the AI frenzy, Nvidia, can lose relevance in a day. It recently rose 30% in after-hours trading following an upbeat announcement on future revenues. A week ago, I wrote about Nvidia going above US$300 and it touched US$418 intraday on Tuesday NY time to enter the exclusive US$1 trillion club occupied by only Apple, Microsoft, Alphabet and Amazon. At time of writing, close of Wednesday, it was back below US$380.  

Source: Morningstar Premium

The other side of such meteoric rise is the hedge funds and others who are negative on the stock and take short positions, with losses heading to US$10 billion.

For the moment, Nvidia dominates the AI landscape, a leap above the Central Processing Unit (CPU) technology of other companies. Nvidia CEO Jensen Huang told CNBC:

“The flashpoint was generative AI … we know that CPU scaling has slowed, we know that accelerated computing is the path forward, and then the killer app showed up.”

At some point, other companies will catch up. Nvidia is currently trading on a Price to Revenue ratio of 37 and a Price to Earnings of 204. There is a famous statement from Scott McNealy, then CEO of Sun Microsystems, speaking to Bloomberg in 2002 about the crazy valuations of his company in 2000 and the subsequent collapse:

“Two years ago we were selling at 10 times revenues when we were at $64. At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends.

That assumes I can get that by my shareholders. That assumes I have zero costs of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate.

Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?”

Three charts on how the market is reacting

Here are three charts selected from various sources which summarise AI’s rise.

1. The five largest companies in the S&P500 (Apple, Microsoft, Alphabet, Amazon and Nvidia), comprise almost a quarter of the index of 500 companies, the highest percentage for 50 years, pushed up by the AI promise.

2. The tech Nasdaq index is outperforming the Dow Jones Industrial index by 22% in 2023, the widest margin in any year since Nasdaq launched in 1971.

3. Analysts have widely-different expectations. Morningstar analyst, Abhinav Davuluri, recently updated his valuation for Nvidia, saying:

"Wide-moat Nvidia reported first-quarter sales ahead of management’s guidance, while providing guidance for the second quarter significantly above our prior estimates. Management expects second-quarter revenue to be at a midpoint of $11 billion, which would be up 64% year over year and 53% sequentially. Yesterday shares in the company leapt from around $305 to $386 on the news.

We are raising our fair value estimate on Nvidia stock to $300 per share from $200 per share, as we raise our forecast for Nvidia’s data center segment revenue to grow at a 30% compound annual growth rate over the next five years (up from 19% previously)."

Other analysts report they have never seen such a wide guidance range on technology stocks as they struggle to understand the consequences of the monetisation possibilities of AI. Within 24 hours of the recent earnings update by Nvidia (NVDA), here are the analyst announcements, with a range of US$320 to US$600.

Back to Bill Gates, who reads more widely in a week than most of us do in a year, who concludes:

“I think back to the early days of the personal computing revolution, when the software industry was so small that most of us could fit onstage at a conference. Today it is a global industry. Since a huge portion of it is now turning its attention to AI, the innovations are going to come much faster than what we experienced after the microprocessor breakthrough. Soon the pre-AI period will seem as distant as the days when using a computer meant typing at a C:> prompt rather than tapping on a screen.”

 

Graham Hand is Editor-At-Large for Firstlinks. This article is general information and does not consider the circumstances of any person.

 

11 Comments
Ruth
June 08, 2023

I made my living from systems analysis and computer programming beginning in the days when it was thought computers were just a passing fad.
Microsoft products were widely disliked as their only interest seemed to be in gaining market share (fix the bugs after it's shipped, just get it out first). Almost no customer service, now none at all; no-one bought their phones.
It's true that if you are asked to add up a set of large numbers a computer can do it faster. But remember a human brain coded the logic of adding the numbers up, and that predates Microsoft by decades (or more!).
I'd like to analyse the statement that something has come along that supercedes 'making calculations'; the statements that 'machine learning' has arrived and with the arrival of large amounts of 'computing power', 'sophisticated AIs are a reality'.
A machine cannot learn. It can do calculations faster than the brain and as your brain attempts to file data the machine will get better and faster at retrieval. I cannot see how this logically ends in 'sophisticated AIs (artificial intelligences) are a reality' now, as the production still depends upon the functioning brain of a human to code what is to be retrieved and when. More important questions: who is retrieving it, why, with what permission; and even more importantly, will our legislators and judges even know what is being discussed (their record for this is woeful, from IT breaches to 'climate change' to genetics). Of course, we were assured this would never happen, as 'fail-safe' mechanisms were to be developed to ensure robots etc would not override humans.
For example, human insulin is now created by bacteria for diabetics (not cow insulin), with the bacteria genetically engineered not to survive outside the lab. What a shame other countries don't (or won't) respect these rules, or even respect the world-wide courtesy of reporting new disease when discovered ASAP before world-wide spread.
The biggest threat to us now is not losing your job to AI. Many jobs need human judgement that cannot be coded yet.
Now you can search for something and get several answers (although the UN etc have been paying for top spots when it used to be the most well liked at top) but I see the real threat of 'AI' as who will win in terms of the one and only answer given to your query. Coupled with a manufactured emergency you will have no idea what is going on. Already there are spoofs out there demonstrating amusing interviews, and other 'interviews' which are very realistic and can be made more so. Fake news at a very convincing level. That's the real threat.
None of my investment funds will be directed there. I think it's a bigger hoax than 'stop the climate changeing even though it always has and always will'.

Everyone seems

stefy
June 04, 2023

Look out all you people working from home. If your boss never sees you, why wouldn't they get the job done via AI and save a lot of money.

Eric
June 06, 2023

If the position is replaceable by AI, it would be replaced ultimately. Regardless of WFH or working on site.

Acton
June 03, 2023

"Within 24 hours of the recent earnings update by Nvidia (NVDA), here are the analyst announcements, with a range of US$320 to US$600."

That is a huge range, which demonstrates that most of these analysts will get the price wrong, either too high or too low, speculating, rather than logically and methodically analysing facts to come up with similar conclusions. With such a variation in predictions one can have little confidence in their analysis. I predict stock analysts are a prime target occupation for replacement by ChatGPT. Who would you trust more?

S2H
June 02, 2023

Agree Dean, Nvidia is the only game in town for GPUs at the moment. However there are a few potential risks I see going forward:
1. Intel are making a push to get into the GPU business. You can bet the US Government will be very supportive of that, as it is the only American company who can manufacture its own chips.
2. Nvidia's GPUs are considered extremely overvalued by gamers, which still account for 50% of GPU sales. At some point the price of GPUs will need to come down or people will stop buying them. After all, not many people who can afford a starting point of $500 for a decent GPU. It'll be interesting to see if that is offset by growth in demand for chips from data centres, crypto and AI.
3. Like Apple, Nvidia are entirely reliant on the manufacture of chips by TSMC. If there's conflict over Taiwan before TSMC builds some factories outside Taiwan... say goodbye to Nvidia's share price (and Apple's, and AMD's, and frankly the global economy).
4. At some point someone is going to crack quantum computing for the personal PC. And when that happens, there's going to be a major disruption to the chip industry.

The checker
June 01, 2023

Mmm, productivity enhancement is only about document handling and sales? C'mon, Bill, you can do better than that. It's a revolution. I asked ChatGPT how it can enhance productivity and it replied as follows:

ChatGPT can enhance productivity in several ways:

Information retrieval: ChatGPT can quickly provide information on a wide range of topics. Instead of spending time searching the internet or sifting through documents, you can ask ChatGPT for relevant information, saving you time and effort.

Task automation: ChatGPT can automate repetitive or mundane tasks. For example, it can help you draft emails, write reports, generate code snippets, or perform data analysis. By offloading these tasks to ChatGPT, you can focus on more complex or creative aspects of your work.

Idea generation: When you're stuck or in need of inspiration, ChatGPT can be a valuable brainstorming partner. By discussing your ideas with ChatGPT, it can provide fresh perspectives, suggest new directions, or even propose solutions you may not have considered. This can help overcome creative blocks and accelerate problem-solving.

Collaboration aid: ChatGPT can assist in collaborative work by providing real-time suggestions, feedback, or alternative approaches. It can act as a virtual teammate, helping you refine your work, generate new ideas, or even facilitate discussions among team members, especially when working remotely.

Learning and research: ChatGPT can be a valuable learning tool, helping you understand complex concepts, providing explanations, or offering insights into various subjects. It can also assist with literature reviews, summarizing research papers, or suggesting relevant sources to enhance your research productivity.

Workflow optimization: ChatGPT can help streamline your workflow by offering tips and strategies for time management, organization, and prioritization. It can assist in setting reminders, creating to-do lists, or even providing motivational messages to keep you on track.

Language and communication support: ChatGPT can assist with proofreading, grammar checks, and language refinement, improving the quality of your written content. It can help compose professional emails, reports, or presentations by offering suggestions to enhance clarity and coherence.

Remember that while ChatGPT can be a powerful productivity tool, it's important to critically evaluate its responses and use your judgment. It's always a good idea to verify information from other sources and apply your own expertise to the tasks at hand.

Peter
June 02, 2023

“Remember that while ChatGPT can be a powerful productivity tool, it's important to critically evaluate its responses and use your judgment.”

Very important. As an old engineer, I saw the transition from the slide rule to the calculator. With a slide rule, you got the digits of the answer, but not where the decimal point was. Separately you had to work out the approximate answer, meaning over time you developed a sixth sense about what it should be.

Many a young engineer would punch the numbers into a calculator and present the answer as gospel without considering if it made sense. This led to a loss of expertise till systems were developed to overcome the problem.

Hopefully this new tool will not lead to a dumbing down of people’s expertise.


C
June 04, 2023

you are being VERY optimistic to hope that AI will not lead to dumbing down.

Allan
June 06, 2023

"[..] ..you got the digits of the answer, but not where the decimal point was. [..]" Similar to those who purchase a more expensive multimeter having a few more digits in its readout than the el cheapo multimeters, with them thinking (so but-wishfully) that with greater resolution must naturally come greater accuracy. It's possible, but just because it has a greater count of numbers, one best never 'count' on its accuracy any moreso than that of the el cheapo. 

Mart
June 01, 2023

OK, I have to ask ..... was this article written by the real Graham Hand or the AI version of him ?

Dean
June 01, 2023

Haha :P - regardless very well written.

It's certainly an exciting time to be alive. There is a plethora of AI stocks to invest in, but my $$$ is in hardware and infrastructure, and NVIDIA is currently the only company providing the pics and shovels for the ongoing gold rush.

Not only will they be changing the landscape in generative AI, but they are also leading in accelerated computing, a concept that many people are either ignoring or unsure about."

 

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