Investment strategies in AI should take into account what and how AI is changing many fundamental business conditions, as well as what preconditions the investor has for engaging in the field.
This blog post is the last in the series on AI’s disruption of innovation
This blog entry is the last in a series about the disruptive impact of a technology based on a new form of intelligence that is self-learning, universally enabling, and allows for deep customization:
- Where does AI impact today?
- What is new and disruptive about AI?
- AI’s effect on robotics and experimental automation
- AI’s effect on climate and meteorological research
- AIs impact on social sciences
- AIs impact on education and mental health
- AI’s impact on biotechnology and pharmaceuticals
- AI’s effect on materials research and quantum chemistry
- AI’s effect on theoretical physics and mathematics
- What should investment strategies in AI take into account?
Today, Many of the Basic Conditions for Business and Trade Are Already Altered
In general, the more uncertainty factors a company or investor faces, the greater the value of preparation. This involves, among other things, developing scenarios, assessing which are most likely, and identifying options for hedging risks.
Today, many of the fundamental conditions for businesses are already heightened. This includes, for example, climate change, geopolitical uncertainties, and financial risks stemming from very high debt levels. AI is an additional and structurally deep uncertainty factor.
- Global investments in climate transitions, for instance, will amount to almost USD 5 trillion annually if climate targets are to remain within reach.
- Rising geopolitical uncertainties are also tying up much of countries’ budgets. Investment funds for rebuilding military defense capabilities are often taken from climate initiatives, as seen in the UK, Germany, France, and the Netherlands.
- In addition, new types of geo-economic institutions, investors, and structures will emerge or shift influence , thereby affecting predictability.
- Finally, the combination of high debt levels and the prospect of rising interest rates means that many countries are holding back from supporting or investing in technologies aimed at solving future problems. Governments need to be certain they can address immediate and short-term challenges first.
AI increases the inherent Risk Across Almost All Areas
Many countries have adopted policies to promote the development and use of AI. All nations are aware that AI, in practice, may determine their developmental opportunities and futures.
Therefore, AI has become central to geopolitical strategies. Yet the likelihood is rising that financial or political support for AI strategies will fail to materialize in practice. Many countries are forced to prioritize short-term needs over long-term objectives, as noted above.
Therefore, AI Investment Strategies Should Be Considered Carefully
Investment strategies for AI should at a minimum address the following questions:
- Where do we believe the greatest potentials lie?
- When will they mature, and how long will they last?
- What factors could alter these potentials? (vertical AI integration, regulation, geopolitics, new policy, etc.)
- Is there, alternatively, value in complementary sectors? (e.g., data center cooling or waste heat, energy infrastructure, specialized hardware, etc.)
- Why do we believe we have the capabilities to capture these potentials?
- What natural preconditions do we have for investing (e.g., know-how, customers, synergies, cultural cohesion, key technologies, networks, and alliances)?
- What general preconditions do we have to support growth companies?
- Geopolitical resilience? (e.g., can we sustain competitive innovation if it becomes de-globalized, and can we retain the most value-creating parts of the value chain?)
- In what form should we invest?
- Indirectly, i.e., in large listed Big Tech firms or through Venture and Seed funds?
- Directly (as controlling shareholder, major shareholder, or tag-along under what terms)?
- Hybrids in the form of partnerships or other business models that mitigate parts of AI, supply chain, and political risk?