While everyone knows that the artificial intelligence (AI) revolution is here, many people are underestimating how quickly this is going to happen. In just 2.5 years we might already be moving from phase one, where we ask AI questions and it provides answers, to phase two. This next phase is going to see AI and AI agents completing tasks for humans at scale. When humans can set AI to work and automate tasks for them in their day-to-day lives, at work and home, that is a game changer.
From an investor's perspective, it will be quite difficult. We have never before seen the level of disruption that is coming. Nor have we seen change at such speed. There are some obvious places to invest but in the next few years we are going to see many businesses become obsolete. It will be like the disruption that we saw with the internet and cloud over the last 20-30 years. Except AI disruption will be even more transformative and happen over the next 5-10 years.
Most investors are focused on the hyper-scalers in the AI arms race, companies such as Microsoft, Amazon, Meta, Apple, Alphabet and Nvidia. But many other companies will leverage AI to transform their businesses, creating productivity gains and opportunities. Conversely, many companies won’t react quickly enough. It will be more important than ever to avoid holding these companies in your portfolio. It will be critical to identify these stocks before the market understands it and adjusts their value to reflect their bleak future.
There is another type of company worth thinking about beyond the more obvious winners and losers, and that is those that are the least likely to be disrupted by AI. These companies are capital intensive, regulation protected, or infrastructure driven. They will be the types of businesses where AI is a tool for improved efficiency rather than a threat. This is an important part of diversifying an investment portfolio.
In Australia, companies like Transurban and Woodside Energy come to mind. Transurban owns and operates physical toll roads with a monopoly position. AI might improve traffic flow or autonomous vehicles’ use, but cars still need roads. In the case of Woodside, AI doesn’t disrupt demand for physical energy, especially LNG. Drilling rigs, pipelines and LNG export terminals are assets that have high barriers to entry, and long-life infrastructure that AI is unlikely to replace.
In the USA, companies like Caterpillar and Chevron come to mind. Caterpillar makes heavy machinery, with building infrastructure still requiring physical machines. AI may enhance predictive maintenance or autonomous machinery. However, this benefits rather than disrupts CAT’s dominance in large equipment. Chevron’s value lies in oil and gas production and refining, which require physical infrastructure. None of which are easily replaced or replicated by AI.
The result of both the pace and volume of change from AI will be confronting on multiple fronts. AI will result in large job losses, it will change consumer behaviour, and it will impact businesses dramatically. But it will also create new jobs and entire industries and enhance the way we live and work in ways we never imagined were possible. Yet amid all this, the world will still need energy, infrastructure, and physical assets. In a time of disruption and volatility, it's important to understand that not everything will change.
General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.