BNP Paribas: 9 AI Developments in 2024
Plus macro view for the year
The "Investment Outlook for 2024" report by BNP Paribas Asset Management provides a comprehensive analysis of the investment landscape for 2024, with a focus on macroeconomic trends, asset allocation strategies, sustainability, technological advancements, and specific regional insights.
Below are the highlights from the section on AI:
Nine AI developments in 2024
Artificial intelligence is a technological advance in its own right. More importantly, it is an enabler that a whole spectrum of players can harness to build new products and services. The technology’s ‘generativity’ – its capacity to produce unanticipated changes – is already bringing advances and significant disruption across industries.
As a result, we are on the verge of series of technological revolutions in various sectors – and as we know from previous such revolutions, that means a period of creative destruction, with change happening quickly, existing players being outpaced by new challengers, and new solutions to old problems emerging at pace.
BNP expects 2024 to be a crucial year in the development of the investment opportunity that AI offers.
1. Continued growth of the infrastructure for training AI models. Capital spending by cloud service providers and large businesses stands to benefit semiconductor companies and the providers of servers, storage and networking gear.
2. The emergence of a credible competitor to the leading provider of graphics processing units (GPUs). A potential industry shift towards software that can fit with different hardware could begin to work in its favour as it continues to collaborate with the open-source software ecosystem.
3. A wide range of leading tech companies looks set to continue to use application specific integrated circuits (ASICs) in select high volume applications. However, we expect GPUs to power most AI workloads.
4. Developers will likely deploy GPUs, field programmable gate arrays (FPGAs) and ASICs. AI will likely be a major driver of semiconductor demand for the remainder of the decade, and logic and memory chip companies, foundries and semiconductor capital equipment and materials providers should benefit.
5. On the networking side, there is an emerging opportunity for the back-end networking of AI supercomputers, with Ethernet adoption outpacing InfiniBand growth, due to its ability to support multi-tenant cloud infrastructure.
6. Providers of servers, data storage equipment, optical networking gear and cyber security platforms will likely see incremental revenue opportunities.
7. Cloud service providers could develop larger, more powerful AI systems. Software companies will likely continue to embed AI functionality to improve their products. Investors are sure to monitor the ability of technology providers to monetise the new capabilities.
8. Use cases for AI will likely proliferate. UK newspaper The Economist has pointed out several interesting scientific applications, including:
• Pattern recognition (for drug discovery and materials science)
• Predictive engines (folding proteins)
• Complex computer simulations (weather models and simulating processes)
• The use of generative AI to design new chemicals. Companies are using generative AI for a broad range of activities including
• Software development
• Chatbots for customer service
• Writing contracts
• Automating the production of marketing content.
In the industrial sector, manufacturers and equipment providers are implementing AI systems to enhance process controls and digital twin models.
9. Bottom-up fundamental research will be critical to identifying the best stocks to play this theme, while avoiding companies that are unable to adapt.
Other Macro Views
Volatility as the New Normal: 2023 saw unexpected changes in the global economy and financial markets. 2024 is expected to continue this trend, creating opportunities for active managers.
Resilient Economies Despite Rate Hikes: Despite central banks raising interest rates by 500 basis points since 2021, a global recession has not materialized. The U.S. economy remains robust with resilient employment, while Europe shows weaker growth.
Long-term Market Perspectives: Long-term bond yields have increased due to reassessments of long-run policy rates and interest rate risk. Optimism about AI's impact on future earnings has bolstered the U.S. equity market.
Macro-economic Outlook for 2024: The U.S. faces decreasing excess savings and business investment, while Europe risks stagflation and China deals with a property crisis. Geopolitical complexities add to market unpredictability.
Asset Allocation Strategy: Prefers government bonds over equities, expecting lower bond yields and equity prices.
Sustainability and Investment Themes: Focuses on environmental sustainability, energy transition, AI's role in sectors like healthcare and education, and infrastructure debt as key investment themes.
Full report:
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