By Jaco Visser, editor of Citywire South Africa.
Original Article: Read Here
The $10tn Industry waiting to be disrupted by AI.
The popularity of the Magnificent Seven stocks can be ascribed to the coming of AI – now a trillion-dollar industry. Imagine the investment opportunities that will be unleashed if this technology is utilised to disrupt the $10tn global services sector.
Laing Walker, assistant portfolio manager and global analyst at Centaur Asset Management, thinks this is precisely where the next stage of AI growth will be. The question is, how will it be monetised, and who will constitute the leaders and laggards.
History should be considered here, he said.
‘It’s important to go back and look at the historic tech cycle. So, if you look 10 to 15 years ago, one would buy a Microsoft Office licence, pay for it upfront and typically own it for a few years, until maybe the next product cycle,’ Walker told a recent webinar.
‘Then cloud came along and we got access via the internet for a monthly fee. And it was very transformative. It offered great access at a lower cost for the consumer, while the software producers improved monetisation.’
A little while later, software-as-a-service (SAAS) came along, and then AI became accessible to the wider consumer public. Now, Walker reckons that service-as-a-software is the new frontier in information technology.
‘AI could bring a new SAAS model – the concept of service-as-a-software. It’s this idea that AI becomes agentic and starts taking on the roles of the human, and starts performing human tasks,’ he said.
‘So, to give you an example: a patient may go to the hospital and instead of being triaged by a nurse or a doctor, in the future, the patient could be vetted using an AI interface, which could more accurately and quickly diagnose and triage the patient.’
Jobs
Walker identified customer service reps, paralegals and software engineers’ roles as being in the firing line of AI disruption.
‘AI could go after about a billion knowledge workers, and disrupt not just the $1tn software industry, but the $10tn services industry globally,’ he said. ‘It could be wildly disruptive. Obviously, where, when and how – it’s still too early to tell for us right now.’
For him, the disruption ‘will work best in … industries where there is greater inefficiency, tasks and processes are quite repetitive, labour can be an onerous charge, and there’s a lot of data – in other words, the ‘perfect breeding grounds for these AI models to learn and disrupt’.
This disruption will likely play out in two ways.
‘The first path is you’ve got these companies, probably the leaders, that’ll be able to self-disrupt … internalise AI and be able to get ahead of the disruption. They can become an AI enabler themselves,’ Walker said.
Booking.com was cited as an example. ‘We use it to book all types of travel. It’s our hotels, our flights, our taxis. And right now, we do all the searching, comparison, booking, and just generally putting the entire trip together. In the future, the app will do all of this for you – the embedded AI will act like a travel agent in software form.’
The second type of adoption might be less voluntary. This will see a wholesale, industry-wide shift to SAAS.
‘The second path involves industries where large parts of the workforce could be replaced. You’ve got something like Harvey.ai, which is going after the $1tn legal market and questioning whether the paralegal role needs to exist,’ Walker said.
‘Or Factory.ai, which is going after $1.2tn software engineering market, where lower-value programming could be done by an AI bot faster, cheaper and could replace a large part of this engineering space.’
Approach
Fund managers – who’d likely not be immune to AI’s disruption and effect on the knowledge-job security – now face a daunting task.
‘I think, importantly, right now our job is to identify which of our companies could be disrupted, which of our companies could end up being an AI enabler or disruptor, and be on the lookout for these new emerging business models,’ Walker said, referring to the global services industry. ‘We have to position for the mass-scale disruption that is inevitably coming.’
As AI’s influence plays out across industries, Centaur, with R11.5bn in assets under management, is banking on stocks that constitute the backbone of AI.
‘At this point in the tech adoption cycle, we think the best risk-adjusted bet to be in are the companies that are providing the picks and shovels,’ Walker said.
For example, ‘it’d be difficult for AI to progress without AI hardware, so Dell. It’d be difficult to progress without the cloud, so Microsoft. We’re also investing in these rapid AI adopters, like Trip.com where they’ve already internalised it. They’ve been embedding AI for years.’