Artificial Intelligence (AI) is a catch-all term used to describe a machine’s ability to perform actions that require intelligence, such as natural language processing, image recognition, knowledge representation, and problem solving and reasoning. While AI has been around since the 1950s, in the past few years we’ve seen a massive ramp-up in investment, with digital natives like Alibaba, Tencent, Google and Amazon investing billions of dollars in AI technologies.

This renewed focus on AI has already yielded several breakthroughs, including voice-based systems like Apple’s Siri and Amazon’s Echo, personalized movie, music and book recommendations, and more accurate medical diagnostics.

Muscling Our Way to Intelligence

Deep learning, which essentially tries to mimic the human brain’s neural networks in an effort to recognize patterns, is at the heart of AI technology. While advances have been made in deep learning algorithms, when it comes to achieving progress in AI, however, brute force has thus far trumped intelligence. Increased computational power and the availability of massive amounts of data have driven most of the breakthroughs that we’ve seen. This allows deep learning to be applied exhaustively to large volumes of data to generate more accurate insights.

Rethinking the Future of Pretty Much Everything

Company managements today are grappling with questions about how AI can help them renew core businesses or innovate into new businesses. E-commerce is clearly a threat to most brick-and-mortar retailers but, by incorporating AI, retailers can, for example, optimize an omni-channel strategy, personalize marketing campaigns, create dynamic pricing models and forecast inventory needs.

Disruption in industries like manufacturing and engineering is already evident and will likely accelerate as automation and process efficiency become more sophisticated and are more widely adopted. The auto industry has also embraced AI with innovations that replicate and enhance the skills of the driver. In farming, the use of sensors to treat plants can potentially lead to a 30x increase in productivity without using genetic modifications.

And the Winners Are …

Artificial intelligence is often referred to as the Fourth Industrial Revolution and will be a massive boon to many sectors. As investors, we are particularly attracted to two key groups that are driving the advances we’ve seen in the past few years – those that own the data and those that enable hyperscale computing. In China, companies like Alibaba and Tencent own substantial amounts of data collected from their hundreds of millions of active users. AI can be applied to this data to analyze spending patterns, social media usage, gaming preferences and content demand, and to deliver an unprecedented level of customization of the customer experience.

The brute force necessary to crunch all of this data requires thousands of servers and increasingly sophisticated chips. We believe that the wave of chip demand that accompanied the smartphone revolution will pale in comparison to the one that will come from AI. Leading-edge chip manufacturers like TSMC are making most of these advanced chips and are already seeing accelerating demand from data centers, with even more to come as AI is incorporated into devices.

There will no doubt be casualties of AI disruption, and humans will have to rise to the challenge. Our sustainable advantage over the machines is our ability to tap into characteristics that they can’t replicate (yet) – our capacity for empathy, inference and, importantly, imagination.

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