By Chris Ford, Head of Growth Equities, Sanlam Investments
First published in What Investment magazine
What is artificial intelligence?
The term ‘artificial intelligence’ or ‘AI’ has a range of definitions – the Cambridge University Dictionary defines it as follows:
"Artificial intelligence is the study of how to produce machines that have some of the qualities that the human mind has, such as the ability to understand language, recognise pictures, solve problems, and learn." 
The late Patrick Winston, who led the AI lab at MIT for nearly 30 years, defined artificial intelligence as:
"[concerning] algorithms, enabled by constraints and exposed by representations, which support models targeted at thinking, perception, and action."
There are many other definitions of artificial intelligence – in fact there are so many out there that it would be impossible to capture them here. We are not academics (or IT consultants) and we don’t think there is much mileage in starting a lengthy debate about semantics. However, we define AI as follows:
"Artificial intelligence seeks to synthesise, automate and optimise the process of converting information into useful and actionable knowledge."
We like our definition, as it avoids an unduly anthropocentric perspective of AI, whilst at the same time capturing the applied nature of the AI platforms in which we are looking to invest. The conversion of information into useful and actionable knowledge is precisely that which corporations are looking to engage with, and in which we are looking to invest.
Why does AI matter?
From our perspective, there are number of reasons why artificial intelligence is a vitally important investment theme of long duration. The first is that it has the potential to transform rates of economic growth and boost productivity – the latter issue in particular has been a major headache for policymakers in the developed world in recent years and has not gone away despite the unprecedented financial stimulus seen since the Global Financial Crisis.
AI allows dull, time consuming and repetitive tasks to done quickly and, when well implemented, with a high degree of efficiency. By definition, humans tend not to be great at these types of tasks because of the nature of the work. The ability to automate dull, repetitive tasks (such as form filling) means that humans can focus on more complex or more technical challenges, which aren’t as easily addressed by AI. The door to meaningful improvements in productivity has started to open.
The second, and perhaps most important reason why investors should think about AI, is that it has the potential to transform almost every industry and every geographical region in the world. It is wrong to think of AI simply in terms of the companies that provide the enabling technology – this is important of course, but not the whole picture. Not all companies can engage successfully with AI, sometimes for reasons of a skills deficit, sometimes because of legacy business process issues, sometimes as a result of strategic ignorance. Those companies which successfully engage with AI are developing significantly enhanced competitive moats around their businesses, and we’re as interested in these businesses as we are in those that develop the tools.
It is also important to understand that while the US is a significant player in AI, there is plenty of AI development going on elsewhere in the world. China in particular has emerged as one of the major players in artificial intelligence – in part because the nature of Chinese society, and in particular the role of the Chinese Communist Party, has allowed China to roll out AI at a pace that would be very hard to replicate in the Western world.
Whilst we in the West hear a lot about the surveillance culture in China, we hear much less about the extraordinary rate at which AI platforms are being adopted in other spheres. China’s advantage in AI is partly explained by its technology position, but also by the incredible rate of business innovation in China, with companies built with AI at their very heart emerging at a rapid rate.
Towards Big Brother?
AI undoubtedly has its detractors, particularly when it is deployed in areas such as surveillance. However, for us the benefits of AI are so huge that the positive global impact will comfortably outweigh any potential negatives in the longer term.
In the financial sector, machine learning is being deployed to counteract fraud – this is saving banks like JPMorgan hundreds of millions of dollars a year. In the auto sector, self-driving cars are already here and intelligent ‘active safety’ will mean that, in years to come, crashes because a driver dozed off behind the wheel will become a thing of the past. In the industrial sector, AI-enabled predictive monitoring and maintenance can prevent equipment failures long before they occur – potentially with life-saving results in sectors like aviation, oil & gas and chemicals.
We also have to acknowledge that the pandemic has changed what is regarded as ‘normal’. We think that most societies, even those in the West, will accept a greater degree of monitoring if it means that other freedoms – such as travelling internationally or attending a large gathering such as a music concert or a theatre – can be restored. AI will have a crucial role to play here.
More prosaically, if you have ever engaged with Google maps or an online ‘chatbot’ or ‘help bot’ on a retail platform, you have already engaged with AI. Creative ‘snowflakes’ are not immune either; AI applications can write, create art and even compose music. The Guardian asked GPT-3, the leading-edge natural language generation platform, to write an article to make the case for benign AI: it was published in 2020.
What are we looking for?
We seek to find beneficiaries of AI across all sectors and geographies – we invest internationally, in developed and emerging markets and across a wide range of sectors. We don’t have a benchmark as we want to invest in a high-conviction manner – benchmarks can leave investors in a straitjacket and this is something we have sought to avoid from the outset.
The bulk of our effort is focused on companies that are using AI to improve their businesses and strengthen their competitive position. Typically, technology only represents around 40% of our overall exposure – we are looking to play the long game, and to invest in the beneficiaries of AI far beyond Silicon Valley.
One of the sectors most positively affected by AI is healthcare and this is a huge opportunity set for us. Again, the ability of AI to perform routine but high volume tasks quickly, efficiently and reliably can transform patient outcomes – there is a raft of evidence out there already suggesting that the ‘average’ AI radiographer is already more effective than the average human counterpart. This is of no small significance given that demand for radiographers tends to outstrip supply as training a human radiographer takes years. AI-enabled robotic surgery is another area that we expect to deliver significant growth, and wearable AI-enabled (and discreet) heart monitors are already saving lives.
Using AI to analyse large data sets (such as those held by the NHS) means that discoveries of new drugs can be made much more quickly – crucial if we are to beat Covid-19 – and similar to our sleepy human driver referenced above, AI means that ‘accidents’ or misdiagnoses should become a thing of the past. DeepMind’s work on protein folding opens the door to bespoke medicines and even ‘eco enzymes’ that could eat all the plastic in the world’s oceans. These are the kinds of opportunities that we are trying to capture – and which are powered by AI.
How do we use it?
We eat what we cook – we already use AI to help screen our investment universe, using a proprietary platform. This platform trawls official documents (such as earnings statements and reports and accounts) for the markers of AI that we have defined. It can do this in a range of languages and file formats and it works 24/7. It has identified some companies that we would never have thought to look at.
Even if you don’t believe it…
We don’t expect everyone to ‘get’ AI. Not everyone will want to invest in it, or even believe in it. The bottom line though is that it is here, and it is already transforming some industries for the better. Early adopters will, in our minds, have the edge as they are by definition forward-thinking entities and will use AI to consolidate what are, in some cases, strong positions within their sector or industry. However, for some firms, and some jobs, AI will pose an existential threat. The pandemic has irreversibly accelerated the pace of adoption of AI, and there is no going back to the world as it was before.
 Source: Cambridge Dictionary, 19 April 2021. https://dictionary.cambridge.org/dictionary/english/artificial-intelligence
 Source: MIT OpenCourseWare, MIT 6.034 Artificial Intelligence, fall 2010, https://www.youtube.com/watch?v=TjZBTDzGeGg
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