The Next Phase of The AI RevolutionTheNextPhaseofTheAIRevolution

As artificial intelligence (AI) developments continue to evolve and proliferate across industries, Jennison Associates’ equity analyst, Owen Hyde, provides insights into key questions that are top of investor mind.

 

1.What is the primary issue software has faced in 2024, and why do we think software’s future is brighter than its recent past?

The primary issue that software has faced year to date is that they're still in the R&D phase. They don't primarily sell AI based solutions today. They're selling the same products they have been for the last three to four years, and seat growth has been under pressure and you can only raise price to some extent. So they're primarily investing their dollars behind a new generation of products that has not rolled out yet. And so if you think about what's to come in software, it's a much brighter future than where we've been over the past six months. So we're still pretty positive on software overall, but they have to get through this period where they're developing product and they have to move from R&D into production to have something to sell. And we're very encouraged by the value add they can have for their customers and the productivity that they can deliver.

2.Will AI-related applications displace workers, or will they become tools that help unlock human productivity and effectiveness?

We think that is a big misnomer when we talk about AI. It’s unlikely to see a scenario where it is a direct displacement of human labor, at least based on what we're looking at right now. There's some future that we can't foresee now where it becomes much more capable to the point where it's displacing human labor possibly. But based on what we're looking at now and in the very near future five years, it seems very likely to be a really powerful assistant for most people in their daily lives and human reasoning, and cannot really be displaced in that way. You're still going to need human in the loop on almost all these tools, and that's the way we see it. Even with the most cutting-edge products today, they're not displacement of human labor.

3.Some companies may have an unexpected advantage in developing and implementing AI-related tools: access to large amounts of clean data. What are compelling opportunities that you currently see in this environment?

One of the areas in particular that we are watching are some of these large companies that own a lot of their own proprietary data. And we'll be watching to see what they do with that data, how they employ AI to scrub the data, manipulate it, use it for all sorts of things that we don't really know how it's going to be used yet, but having that large amount of proprietary data, we think will be an advantage for them.

Two areas in particular that we're watching closely and we think would be at the front of that are drug discovery within healthcare and autonomous vehicles. And those are two huge end markets. We think that's a really important observation and it is still very early. We've observed a lot of these companies doing early tests, but we're still in the R&D phase for a lot of these products, and getting your data state in order is still a huge focus for a lot of companies and it's not particularly easy to do. At least a handful of the companies we've talked to over the past year or so have spent tens of thousands of man hours on this problem over the last five years. And just having the data itself is not enough. They need to be able to effectively employ AI.