AI

Earlier this year the McKinsey Global Institute attempted to simulate the impact of AI on the world economy. The simulation found:

  • At the global average level of adoption and absorption implied by the simulation, AI has the potential to deliver additional global economic activity of around $13 trillion by 2030, or about 16 percent higher cumulative GDP compared with today.
  • Front-runners are likely to benefit disproportionately. By 2030, they could potentially double their cash flow (economic benefit captured minus associated investment and transition costs).
  • Nonadopters might experience around a 20 percent decline in their cash flow from today’s levels, assuming the same cost and revenue model as today. One important driver of this profit pressure is the existence of strong competitive dynamics among companies that could shift market share from laggards to front-runners.

 

AI Adoption Cohort Cash Flow Changes

“The opportunity of AI is significant, but there is no doubt that its penetration might cause disruption. The productivity dividend of AI probably will not materialize immediately. Its impact is likely to build up at an accelerated pace over time; therefore, the benefits of initial investment might not be visible in the short term. Patience and long-term strategic thinking will be required.”

Macrovue’s investment committee have identified five companies we feel are leading the charge when it comes to artificial intelligence, and have the potential to become front-runners…


Amazon (NASDAQ: AMZN)

One of Amazon’s other “jewels in the crown” is Amazon Robotics. Founded in 2003, and significantly expanded in 2012 with the acquisition of Kiva Systems, the Amazon Robotics division is responsible for almost all of the company’s fulfillment centre (FC) automation work.

Kiva’s orange robots (that can reportedly reduce operating expenses in an FC by 20%) are at the centre of that automation. From a base of 1,500 in late 2013, the number of robots in operation jumped steadily since to more than 100,000 today in at least 25 facilities.

 

No of Kiva robots in Amazon FCs

 

Amazon returned +21.45% (AUD) in the year to 1 December 2018.


NICE Ltd. (NASDAQ: NICE)

Nice Systems is an enterprise software company and one of the largest technology organisations in Israel. The company's software is used for customer experience, regulatory compliance and financial crime prevention.

Nice has customers in more than 150 countries, including some 85% of the Fortune 100 companies. The company’s Actimize division provides software-based solutions that fight financial crime, money laundering and ensure regulatory compliance.

The latest investor relations communication from NICE summarises the company’s strategy and approach as well as where it sits within its peer group (page 11). It also summarises the latest Q3 earnings report including guidance.

Nice returned +23.45% (AUD) in the year to 1 December 2018.


Accenture PLC (NYSE: ACN)

Accenture is one of the world’s largest IT consulting firms. The company helps its clients build/deploy AI solutions, providing advisory and implementation services such as training AI robots, data modelling, and Synthetic Intelligence.

Accenture’s Artificial Intelligence Engine (AAIE) is a framework that is deployed as a service, for on-demand flexibility, open-source software to deliver modular, reusable, scalable and cost-effective AI automation and augmentation services.

Here’s a great video on Accenture’s vision of Artificial Intelligence.

Accenture returned +15.11% (AUD) in the year to 1 December 2018.


Tencent (Hong Kong: 700)

Tencent shares have been pressured this year by a number of factors: a weak Chinese equity market (-20% YTD), concerns regarding a slowdown in the Chinese economy, and uncertainty over when the government will provide approvals for its newer online games. We believe that these market and macro headwinds are relatively short term in nature and that Tencent will negotiate a positive outcome with the government regarding gaming regulation in 2019.

Analysts also remain positive on Tencent because of its “jewel in the crown”- the fully integrated mobile user platform WeChat. Going forward, Tencent should be able to drive earnings growth by further monetising its strengths in mobile advertising, mobile gaming, and mobile payments.
Tencent has also recently flagged a new strategic direction where the company hopes to build on the foundation of its successful consumer internet presence focusing on the industrial internet for various key industries.

Tencent returned -29.83% (AUD) in the year to 1 December 2018.


Baidu (NASDAQ: BIDU)

Baidu shares have also been pressured by a weak Chinese equity market and also by fears of a macro induced slowdown in the ad space. While reporting solid 3Q earnings (total gross revenues of Rmb28.2bn, +27% year-on-year), Baidu provided softer-than-expected 4Q18 revenue guidance reflecting: 1) recent policy changes on online games and financial services verticals; 2) proactive shift of structural data landing page display for healthcare queries and 3) softening ad demand as related to trade war concerns.

Despite transitional impact on slowing ad revs, Baidu’s performance-based ads (both search and feeds) should be relatively more resilient to any ad budget slowdowns. Also, Baidu remains committed in its AI investment and opportunistic spend on marketing channels which will nevertheless put some pressure on near-term margins.

Baidu returned -10.38% (AUD) in the year to 1 December 2018.


You can invest in these companies directly through Macrovue’s Artificial Intelligence Vue.


Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual and does not constitute financial advice. Consider the appropriateness of the information in regards to your circumstances.

This content may contain opinions, conclusions, estimates and other forward-looking statements which are subject to various risks and uncertainties. Actual events or results may differ materially, positively or negatively, from those reflected or contemplated in such forward-looking statements.

Past performance is not a reliable indicator of future performance.

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