A Q&A with Clay

Artificial Intelligence (AI) evokes sci-fi fantasies of a world dominated by robots who can think, move and even feel just like humans. Those stark images mean it can be easy to dismiss AI as something that will happen in the future.

But AI is a reality right now. Retailers, banks, tech companies are all embedding AI in their operations. Australia has also embarked on the AI revolution, with technology now driving our iconic mining trucks and even helping manage our outback cattle herds. International Data Corporation has forecast spending on AI to surge from $US12 billion in 2017 to a massive $US57.6 billion in just the next few years to 2021.

In a Q&A interview, Macrovue’s Head of Investment Committee, Clay Carter, discusses his thoughts on how AI is impact our lives today, which stocks are benefitting, and investors should get in early on what could be one of the longest technology trends in human history.

Can you explain what AI actually is?

I’ll tell you want it’s not – it’s not killer robots! It’s pretty basic: it’s the ability of a machine to have a human-like intelligence and the ability to learn.

Some people believe that eventually we will have fully functioning autonomous machines like a human. I don’t know if we’ll ever get that. Right now, it’s more and more sophisticated computer systems and software that can – as McKinsey says – automate knowledge work.

Is AI a futuristic fantasy?

AI isn’t about the future, it’s here and now. A lot of companies are using AI on a daily basis for the likes of fraud detection, customer analytics and intelligent robots such as autonomous cars. It’s all happening right now. This isn’t something that’s a pie in the sky concept.

Who is using AI right now?

We don’t see this as much here because Amazon is very new in Australia, but one of the best examples is what Amazon is doing with their Echo, which is a hands-free speaker you control with your voice. Echo connects to Alexa, an intelligent AI system that understands natural language.

Alexa acts a virtual assistant. You can ask Alexa to do things like control various smart devices, play music; even order nappies and find out what wines goes best with a meal. The more we use the system, the more it learns and the more helpful it becomes.

Google search is another simple example. Google search incorporates AI technology. That’s why if you’re a big Youtube user, you’ll find it automatically recommending stuff to you. Google is also pushing the boundaries with a unit called DeepMind. In 2016, its AlphaGo program beat the world champion Go player.

Is AI catching on in Australia, or are we lagging?

The biggest industries in Australia are finance and mining. Mining is interested in automating a lot of their heavy equipment processes. They have those giant trucks that drive themselves.

Australian companies, including the banks, won’t be originators of AI except in a few start-ups that get off the ground here. But Australian industry will adopt AI. A number of companies –  Accenture, SAP and Microsoft – are advising Australian companies on how to put AI in their operations.

Australian companies can afford it in terms of budget, though it may not show up here as quickly as it has in the US and China.

US and China are the two geographies that are very much at the leading edge of AI. China wants an advantage in AI like there’s no tomorrow. They don’t have the technology infrastructure that the US has developed in the last 50 years. But the Chinese are catching up.

Where do you see AI having the biggest impact on everyday life?

There are three areas where AI will be visible sooner rather than later.

The first is retail. In the US Amazon has opened an automated checkout-free grocery store, which uses AI. You walk in with a smartphone, fill your basket with goods and off you go. More and more of that will end up in general retail.

The second area is manufacturing. There has obviously been a huge penetration of robotics in assembly lines manufacturing around the world. AI will make it more efficient, quicker and it won’t make any mistakes.

The third is healthcare. This is probably the most interesting area where AI is going to be big. AI has the ability to crunch a huge amount of data. That, for example, will help with cross-referencing when doctors diagnose illness; and in the field of genomics, AI will help us discover the genetic basis for diseases.

Is AI the fourth industrial revolution?

It’s what I would call the next digital frontier. This is new. This is the latest iteration of a paradigm shift in technological change.

There are two important things to know about AI. Firstly, the growth and revenue forecasts for the next five years or so are huge. They are much higher than the growth forecast for the likes of big data and cloud computing, both of which are well entrenched. That’s why we’re excited about it.

But the second thing that makes us excited is that we see a very long runway.

So AI is a big, long-term trend?

Absolutely. We see a number of business cycles before this thing is even going to be close to as mature as some of the other things happening in technology like big data and the cloud.

Why is AI being a long-term trend important for investors?

When you invest thematically, you want themes to work themselves out over a very long period. It makes the themes ‘acyclical’ – they’re not necessarily influenced by what’s going on in the economy and interest rates. As you know, a lot of shares are heavily influenced by macroeconomic factors.

But AI will transcend macro factors. This is stuff that can grow no matter what GDP is doing, or retail sales are doing. It’s a totally different growth trajectory and very long in the tooth in terms of what when it will all come to the fore.

Given all the current activity in AI, I assume that means there are investment opportunities emerging right now? What should investors look out for?

From an investment standpoint, we believe the early adopters using AI on an everyday basis are going to differentiate themselves from peers who aren’t embracing it fully. They will shoot ahead of the pack. AI is a way of maintaining sustainable growth and competitive advantage over the long term.

Which companies are using AI on a daily basis now?

The first place we go is the big digital platforms, like Google, Amazon, and Netflix; these companies are all using AI on a daily basis. In China, it’s Baidu – the Google of China – and Tencent, the 800-pound gorilla of gaming and messaging in China.

But there are also the companies that are providing companies with an AI roadmap: the companies providing the software that enables companies to use AI in their enterprise and systems.

They are the big enterprise software companies like Accenture, Microsoft (though Microsoft is both a user and enabler) and SAP, a big German enterprise software company. Those are the larger software companies providing clients with the ability to use AI in their enterprise and systems.

Are AI pure plays available now?

We always try and find some oddball pure plays. We found a company in Israel, Nice System, which is using AI to fight financial crime like money laundering. They’re also introducing robotic processing automation into back-office workflows for larger companies. They’re very much leading edge and have a good percentage of revenues coming from AI.

From a technological standpoint, we also like companies like Nvidia (NVDA), a leader in graphics, or GPUs (graphics processing unit), which were originally gaming chips but are now in data centres and autonomous driving. In order to make AI work you’ve got to crunch an incredible amount of data and you need GPUs from Nvidia to do it. Nvidia is well ahead of the curve.

There is also a company with an unusual name, Splunk Enterprise (SPLK). They specialise in machine data and being able to access it and manage it; they’re embedding AI process into the management of data for their clients. Their clients can get hands on their data and get AI at the same time.

There is a huge amount of AI start-ups that are being funded in Silicon Valley and elsewhere, and we will see them emerge and list over the next 5 years which will create more opportunities.

Macrovue is launching an investment portfolio themed on Artificial Intelligence. Register for our webinar on 3 May 2018 to find out more about this exciting investment opportunity.


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