AI’s benefits are real. We have been early adopters. AI is already helping us boost productivity, deliver greater value to customers, and make our investment processes and operations more efficient and robust. I believe this is only the beginning.
Generative AI and large-language models such as ChatGPT have also generated a major hype wave, from breathless media articles to surging stock valuations. That’s understandable. These models are not only powerful but also sound like people. We can ask ChatGPT almost any question, and it will give us knowledgeable answers. And because it sounds like us, we assume it thinks like us.
Some leading technologists claim we are within reach of artificial general intelligence—an AI capable of tackling any problem, with greater speed, insight, and creativity than humans. It’s tempting to believe them because the potential economic benefits would be immense, and I do believe we will get there. But I also think the hype has run ahead of reality.
It has been almost two years since generative-AI applications went mainstream. We’re yet to see any of the transformational advances that AGI promises. That’s OK. The technology is still young. LLMs do not yet “think” like us; nor do they have mental models of reality like we do. But the risk of disappointment is high.
We might soon fall into a phase of excessive pessimism. It has happened before with AI. People will focus on the pitfalls of the technology—the hallucinations, the risk of deepfakes and misinformation—and lose faith in its potential. Interest in AI would then cool off, and investment flows into the technology might dry up.
That would be a pity but also a great investment opportunity for savvy long-term investors. We have seen that before, too. Over half of the internet-related companies publicly traded at the height of the dot-com bubble subsequently went bankrupt. Others, including Amazon.com and Apple, went on to command unprecedented valuations.
When the hype recedes, we should take a harder look at three areas. First, which companies are already reaping tangible benefits from AI? At the moment, they are concentrated in areas such as enterprise-workflow solutions, customer services, media, and finance. Second, which industries are probably first in line to experience transformational advances? Here, finance and healthcare look like front-runners, together with information-technology, media-creation, and customer-service industries. Third, how quickly can this new wave of innovation fuel a broader acceleration in productivity growth across our economy? This will take longer, as companies invest in new applications and adapt their processes to reap the benefits of AI.
The greatest value is likely to arise where business leaders can harness AI’s capabilities to develop new solutions, open up new markets, or apply new strategies to their largest revenue pools. So far, the biggest winners of the AI revolution have been the companies that provide the picks and shovels to build this new technology: chip makers like Nvidia and cloud storage providers. That stands to reason. But the exciting challenge now is to identify companies that can place themselves ahead of the curve in experimenting and making smart and bold bets on AI. They will emerge as the winners in their respective sectors and be the most rewarding bets for investors.
AI presents enormous opportunities to asset management and the financial industry. Through improved risk assessment it will boost the optimization of portfolio management strategies and enable smarter insurance pricing. It will yield strong efficiency gains across data-intensive processes from compliance to risk management and fraud detection to credit underwriting, enabling massive cost reductions. Most important, powerful analytics and the collaboration of AI and human agents will enable the financial industry to provide more efficient and personalized investment advice and services to our customers. We are investing to ensure that our clients and investors reap these benefits.
Generative AI is evolving rapidly. Scientists are learning how to address its weaknesses—for example, matching it with AI expert systems to mitigate the hallucination problem. Human-machine collaboration will improve. To get the best out of generative AI, we need to learn to use it as a partner in problem-solving and creative thinking. Some fields, such as product design in industry, have already shown the power of this new form of collaboration. With the right investments, AI will be a key driver of productivity for years to come.
While innovation often moves faster than expected, deploying it at scale throughout business applications takes time. It is happening, though, in asset management as well as across many other industries. Business leaders should remain steadfast and focused on building their AI capabilities. Investors should look through the hype and focus on the long-term value to identify the right investment opportunities.
Jenny Johnson is president and CEO of Franklin Templeton.
