The coming AI revolution is going to be 100 times bigger than the industrial revolution – 10 times bigger and maybe 10 times faster, says Demis Hassabis, the CEO of DeepMind, the artificial intelligence arm of Google, and Noble Prize winner. We’ve received many questions from our clients about the impact of AI and how best to invest in it. Our first attempt at tackling this important topic follows.
The steam engine, the primitive yet powerful mechanical heart of the Industrial Revolution, catalyzed transportation, manufacturing, and energy around the world in the first wave. Similarly, the large language model1 (LLM), the first cognitive engine of the AI Revolution, converts raw data into usable reasoning, creativity, and decision-making. This LLM engine, driven by transformers and powered by massive pretraining, has begun to reshape labor, productivity and communication on a global scale. Just as the steam engine was the catalyst for the start of the industrial revolution, the large language models (LLMs) are likely the catalyst for the first wave of the artificial intelligence revolution.
In the second stage, companies develop whole new ways of using the technology. The steam engine allowed for new processes such as using coke to smelt ore, leading to the large-scale production of iron and later steel. This development provided for new construction materials and the rails for expanding railroads. With AI, research becomes more efficient, be it for drug discovery, for writers, academics, lawyers and others.
In the third stage, there is an explosion of uses which leads to specialization. For example, some LLMs will be used for robotics, others for writing code, summarizing company reports or psychological advice.
Subsequently, AI will be most successful in applications we cannot conceive of and result in technologies and science which don’t currently exist.
Both revolutions sparked concerns about job displacement, raised questions about the value of uniquely human skills, and required adaptations in education and policy to manage widespread change. The Industrial Revolution led to the emergence of public education and labor protections. Similarly, integrating AI into corporate America will demand new approaches to workforce training and institutional innovation.
The challenges of AI—ensuring equitable access, managing displacement, and sharing the benefits—echo those faced in the industrial era. The pace of the AI revolution, propelled by digital connectivity, is much faster, however, and creates its own unique set of issues. Ensuring that the goals and motivations of AI are aligned with human goals and motivations is a major challenge. The need for human oversight remains.
- Semiconductor companies design and manufacture the high-performance chips—such as GPUs and specialized AI accelerators that provide the extraordinary computational power required to train and run LLMs.
- Data centers, equipped with thousands of these advanced chips, offer the physical and digital infrastructure to store data, facilitate communication, and deliver AI services at scale.
- Energy producers play an essential role by providing the vast amounts of electricity needed to fuel both the training and deployment of these computationally demanding models. These often-hidden drivers fuel the machinery behind the technological change.
LLMs like OpenAI, semiconductor companies such as Nvidia, and uranium companies like Cameco that power the data centers, may be the early beneficiaries of the AI revolution, but will they prevail? Xerox invented the personal computer, but Apple figured out why people needed to have one. Apple went on to become one of the most successful companies in the world, but Xerox treaded water for decades.
- Retail and e-commerce: AI improves customer experience via personalized recommendations, optimizes inventory and pricing, and enables real-time personalized customer support, both online and in physical stores.
Examples: Amazon and Walmart
- Manufacturing: Users benefit from predictive maintenance, quality control, defect detection, supply chain optimization, dramatically shortened and improved design cycles and smart factory automation powered by AI.
Examples: Siemens, Tesla and Nike
- Transportation and logistics: AI supports autonomous vehicles, traffic management, route optimization, and supply chain efficiency.
Examples: UPS, DHL, Amazon and Walmart
- Energy and utilities: AI drives improvements in energy production forecasting, grid stability, reservoir management, and cost reduction.
Examples: Duke Energy and Exelon
- Legal services: Legal professionals benefit from AI-assisted research, contract analysis, and automating routine tasks.
Examples: Thompson, Reuters, and Westlaw
- Medical: AI promises to greatly reduce medical costs by optimizing disease and illness identification, treatment, and monitoring. Drug discovery and production costs will be reduced.
Examples: Intuitive surgical (DaVinci Robotics) and AstraZeneca
- Hospitality and tourism: AI enhances customer experiences, resource optimization, and operational efficiency in hospitality businesses.
Examples: Marriot International and Booking Holdings
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Traditionally, the answer for most investors has been a resounding yes. For decades, many benefited from the positive performance of the standard 60/40 portfolio (60% equities/40% bonds). But times change, and bonds may not provide the security they used to. We review the primary benefits of bonds, discuss which types are the best portfolio diversifiers, and when bonds can be most effective.
There is no ‘one-size fits all’ answer to this question. Every recession or bear market is driven by a unique set of events, and the portfolio strategies that work best depend on the specific causes and the prevailing political and economic circumstances leading to the downturn.
Markets around the world are down today due to Trump’s unexpectedly punitive tariffs. These tariffs are feared to be inflationary and may cause a recession in the U.S. and abroad.
As Lenin famously said,” there are decades where nothing happens and weeks where decades happen.” We find ourselves in the thick of chaos, with daily political announcements and stock market gyrations. We anticipated volatility, but we got more than we bargained for.We work hard at fighting confirmation bias. In this blog, we attempt to understand different points of view and explain the steps we have taken in the current environment.
Deep Thoughts and DeepSeek
In 2024, much of the 25% equity market return came from multiple expansion. Earnings for S&P 500 companies only grew about 10%, but the amount investors were willing to pay for those earnings (P/E multiple) expanded by about 16%. Thus, about two thirds of 2024 equity performance came from multiple expansion.
In memory of famous investor Byron Wien, who was known for his list of 10 surprises each year, we provide our own list of potential economic, financial, and political surprises for 2025.
Is the Recent Runup in Chinese Stocks a Durable Rally or a Flash in the Pan?
In August of 2021, we decided China was un-investable and reduced our exposure to Chinese equities. In our blog “From Beijing to Wall Street” (here), we detailed our rationale.
Halloween Came Early
Ouch. Since August 1, the S&P 500 has fallen over 7%, a dramatic move, but not yet a correction from the July highs. However, the NASDAQ is down over 10% and firmly in correction territory.
What’s Happening Under the Covers
Why the U.S. Economy Has Remained Resilient in Spite of the Fed Raising Interest Rates and Reducing Their Balance Sheet
In memory of famous investor Byron Wien, who was known for his list of 10 surprises each year, we provide our own list of potential economic, financial, and political surprises for 2024.
If you just landed from Mars and we told you that three good sized U.S. banks had failed, the Federal Reserve had raised rates 5% in 13 months, the yield curve had been inverted since last year, the latest Senior Loan Officer’s Survey showed banks less willing to lend while already at recessionary lending levels, and according to Treasury Secretary Janet Yellen, we are within two weeks of the government running out of money to pay its obligations, would you believe the S&P 500 is up about 9% thus far this year?
How Banks Work
What Causes Banks to Fail
How the Government is Responding
How Bank and Brokerage Accounts May Be Protected
Dilemma for the Federal Reserve
We suspect most people think getting inebriated is more fun than sobering up.
We hate to sound like a broken record and ruin the party, but inflation presents a problem which won’t be easily fixed.
The four most dangerous words in investing are “this time is different”.
A Tongue in Cheek Guide to the Latest Investment Concepts
Mine your reward coins as you read our blog!
Who doesn’t love the story of David’s triumph over Goliath? This past week a group of “small” investors made tremendous amounts of money (on paper at least) by buying stocks that were heavily shorted by large, sophisticated hedge funds.
Markets hate uncertainty, and we can’t remember an election with such potential disparate outcomes. As we speak, the presidential race looks closer than ever, and the Senate majority is in question. Meanwhile the pandemic rages, and the President and Congress can’t agree on a stimulus plan. It’s no surprise stock market volatility has risen.
Fires are burning. The presidential election has never been more heated, and our whole election process is repeatedly questioned. The cold war with China continues to brew regardless of the political party in power. A global pandemic has taken hundreds of thousands of lives and jobs, created loneliness for our seniors, and caused those entering hospitals for medical procedures to endure alone.
He woke up today and asked us for an update. We explained there was a global pandemic that had claimed almost 400,000 lives worldwide and more than 100,000 in the United States.
How can we treat our ailing financial markets?
Medical experts say widespread lockdowns and social distancing must happen to contain the coronavirus and avoid overwhelming our hospital system.
the Coronavirus
Bombs and tweets couldn’t sink the S&P 500, but Covid-19 did.
While there is a role for gold in a diversified portfolio, gold is not universally liked or owned by investors and wealth managers.
The rates on overnight repurchase agreements, known as repos, suddenly rose above 9% last week.
We never really know where markets and the economy are headed, but market participants constantly look for clues.
Why does the current market tone feel different from the February and March stock market selloffs?
When do they protect you? When do they hurt you?
Worst Day Ever for the Dow Jones Industrial Average!
Perspective As the current bull market ages (from the bear market end in March 2009) investors are increasingly worried about buying at the peak.
The basic difference between a mutual fund and an exchange traded fund (ETF) is that an ETF trades like a common stock as its price changes throughout the trading day.
Brexit is spurring a flight to quality move into US Treasuries.
The short answer is yes.
