Generative AI – Fad or Revolution?

If you’re one of the millions, like myself, who have played around with ChatGPT this year, you were probably blown away by the power of this “generative AI” tool.  The “generative” ability for an artificial intelligence tool to create something in seconds that would otherwise take a trained and experienced human mind hours or even days to complete has fueled the price of technology stocks that are likely to benefit from the coming wave of investment in this space. At the time of this writing, NVIDIA has eclipsed a 1-trillion-dollar market capitalization and more than 90% of the returns year-to-date for the S&P 500 have been from seven companies – Microsoft, Tesla, Amazon, NVIDIA, Meta, Alphabet, and Apple.

The optimist in me believes what many in the market do – that this technology has the potential to be as transformative as the application of electricity was for the industrial revolution. The ability to enhance the productivity of humans and allow us to do more with less is an appealing solution to the question of economic growth in a world faced with overpopulation, resource depletion, and climate change. Whole industries and companies will be created and destroyed, or at the very least forced to adapt. An example is education, as universities were faced with how to assess and police students using generative AI to write papers and complete assignments. Chegg, a large American technology company that provides homework help and online tutoring, saw its stock price drop 50% (roughly a billion dollars) in a day on the belief fewer students will use their services when faced with faster, cheaper, more convenient AI solutions. There were reports of AI scoring highly on the SAT, passing the US Medical Licensing Exam and outscoring lawschool grads on the bar exam. There is a realization that white-collar, professional services jobs are now credibly at risk of replacement by AI, similar to what machine automation has done to replace some blue-collar manual labour jobs. The top three jobs most at risk of replacement by AI according to one report that looked at tasks and US Bureau of Labor Statistics data, are telemarketers, statistical assistants, and insurance claims/policy processing clerks.

The war in Ukraine has taught many countries in Europe and the US that globalization and the reliance on other countries for the things you need only works if your trading partners are friendly. Securing of vital resources has become a top priority for many countries, leading to the US passing the CHIPS and Science Act in August 2022, which provides $39 billion in subsidies for chip manufacturing on US soil and $13 billion for semiconductor research and workforce training, with the primary aim of countering China.

For the past few decades, geopolitics has been a smaller talking point in corporate boardrooms amongst management teams, but now it’s a much more serious consideration. If you’re the management team of a global professional services firm, would you risk your workforce and intellectual property by having an office in a foreign country when you could achieve the same output by using AI to enhance your workers at home? It’s apparent that the applications of this technology will have profound implications in shaping our world.

Another part of me sees danger in this AI euphoria, similar to the excitement surrounding legalization that drove weed stocks with little to no earnings to valuations that eclipsed that of established retailers like Best Buy and Canadian Tire, as many believed this to be an obvious investment in an event as significant as the end of prohibition in unlocking the financial potential of the black market. Often the time when there is peak market optimism is also the time of peak investment risk. There is also the concern about those with malicious intentions. Hackers can now use AI to aid them in writing malicious code, and scammers can use it to generate voice and even video in real time to impersonate a loved one. Regulators are racing to catch up and set guard rails on these tools to protect the public.

I believe this technology will eventually change our world, but perhaps not as fast as some hope or in ways that we expect. An example is the dot-com boom/bust, which created the infrastructure and capacity of networking and servers that allowed the eventual move of goods and services to be delivered over the internet vs. in person and data warehousing into the cloud. I reflect on our job as your advisors, and while AI will change how we provide our advice to you, it will never replace the trust all of you have continued to place in us over our firm’s 50 years of history. Trust that comes from truly understanding your personal circumstances – the laughter, tears, excitement, and fears that can flow in our meetings as we use both our hearts and our heads in guiding you on a path to reach your goals. ■

Business Owners

The most overlooked area of financial planning for business owners and incorporated professionals is the lack of integration between corporate and personal assets. When the majority of your assets are in your corporation you need very specific, specialized and personalized financial advice.

Learn More