24.03 Liontrust Global Innovation Report - The Rise of AI 04.24 - Flipbook - Page 19
Is AI a good investment opportunity? AI’s value creation
and capture credentials
Not every great innovation is a great investment. Last year, artificial intelligence made a
giant leap into the investment mainstream. It has been the subject of immense hype, both
positive and negative. On the one hand, AI is supposedly going to launch economic growth
into orbit. On the other, it is about to plot to kill the human race.
In the Liontrust Global Innovation team, we judge innovation based
not on how impressive the technology is or by imagining science
fiction-like scenarios, but on whether it can create genuine value
for customers.
For any innovation, no matter how big or small, we ask: can it
dramatically drive down prices at the checkout? Can it make goods
and services significantly better? The beauty of this approach is
that when companies drive down prices or drive up quality, they
can massively grow the market. There is hardly any more powerful
source of investment returns.
Second, we ask of the value that innovative companies are
creating for customers, can they capture a decent and long-lived
share of it for us as shareholders? If everyone can replicate a great
innovation, then many will, and no one will make any money.
Nothing but both will do. Creation without capture? Think of email.
Nobody doubts that it has been a very impactful innovation, which
has created immense value in driving down communication costs
for billions of people around the world. But no companies have
been able to capture value and build a competitive advantage
around either providing or using it.
Conversely, capture with relatively little creation? Not that we wish
to court controversy but think of crypto as it stands today. A popular
investment for many and at its peak it commanded a market cap
of $3 trillion – an historic feat of value capture, to be sure. But
there has been little value creation by comparison. It may come
in time, but the fundamental use case of a better form of currency
than dollars, pounds and other official currencies for now at least
remains unproven.
When we consider AI, we believe it has the potential to be both
a great innovation and drive great investment returns for the right
companies. Indeed, it may prove to be one of the most important
innovations of all time on both counts and it is already chalking up
significant customer value across the economy. Make no mistake,
AI will not be contained to the technology sector but will affect
every industry. Ignoring AI will mean betting against it because it
will be a brutal source of disruption for many companies on the
wrong side of it.
The rise of AI: Technology and Innovation Report - 19
