According to MLC Asset Management’s chief investment officer, investors will need to be careful about which companies and technologies they choose to back with their capital when it comes to the “game changer” that is artificial intelligence.

In his latest market insight, MLC’s Dan Farmer outlined that the firm’s thoughts on AI remain “preliminary” amid nascent iterations of the technology.

“There is an abundance of literature that argues that a very large part of the economy is likely to see the integration of AI and widespread employment dislocations, but it is equally reasonable to argue that much of what has been expressed, falls into the category of “conjecture,” he said.

He further specified that artificial intelligence has been touted as a game-changer similar to the industrial revolution, although a sober perspective would be to expect its significant benefits to emerge only in the next two decades.

"Unlocking the technology's potential productivity benefits will require workforce reskilling and organizational and process innovation, both of which have been historically slow," Farmer said.

He also cautioned against being "over-egged" on potential performance gains amid market noise.

"The adoption of AI so far appears to be greatest in a few pockets of the economy, such as customer contact centers and software engineering, where it is particularly compelling as a productivity enhancer that can reduce labor costs."

"However, we must guard against exaggerating the potential gains in productivity, as data on productivity growth around computers and the Internet show that while productivity has increased, it has not been a massive increase and productivity growth has returned to period around the 1970s and 1980s rates after the late 1990s and early 2000s,” he said.

In the current state of the market, incumbent operators with their first-mover advantages are likely to dominate this first stage of the technology, he argued. Among these incumbent technology leaders are companies such as Meta, Microsoft and Alphabet, which have benefited from partnerships with firms such as OpenAI and invested heavily in AI research and development.

However, shareholders may have "mixed feelings" about this new wave of investment in the tech industry, Farmer stressed.

"Expenses are likely to squeeze margins, and the potential for a digestion period after rapid early adoption remains possible," Farmer said.

"Additionally, coinciding with a time when the cost of capital is rising, investors will need to be very discerning about which companies and technologies they back with their capital."

He expressed that "plenty of skepticism about ``shiny objects'' will be needed, otherwise billions of dollars of capital may go to waste, "as was the case in the late 1990s tech boom that turned into a bust ".

Regarding MLC's approach, he explained that managers have different views on the valuation outlook for companies directly involved in AI, with some expecting growth while others are exploring opportunities in "AI-adjacent" firms.

“This allows our portfolios to participate in the AI ​​topic more broadly. From our perspective, it's not just the obvious pick-and-shovel vendors who are reaping the benefits of AI commercialization. "Many 'old economy' companies are increasing their productivity by adopting AI in both the development and delivery of their products," he shared.

These include domestic companies such as Treasury Wine Estates, Sonic Healthcare and Suncorp in MLC portfolios, all of which offer exposure to the AI ​​theme.

“These companies are using AI in a variety of ways, benefiting customers as well as shareholders. Our investment managers are constantly on the lookout across the value chain to identify companies that are improving their businesses in multiple ways, including through AI adoption,” he said.

He added that MLC's investments in AI also extend to private markets, focusing on companies integrating this technology to improve business performance.

Last month, Blackstone CEO and co-founder Stephen Schwartzman said AI would evolve from its current IQ of around 180 to 200 to 12,000 in the next four years.

According to the CEO, "almost everyone I know is very concerned about what could go wrong with the technology," especially those who work on its development.

"This is the first time I've seen businessmen adhere to regulation," he muses.

He predicts that the AI ​​revolution will eventually lead to the creation of a global organization, similar to the World Health Organization or the World Trade Organization, dedicated to keeping up with the evolving AI landscape.

"I was in China two weeks ago and President Xi said, 'We really need to have some sort of global organization' for AI." He said it doesn't help that some states regulate and others don't. He said we have to have coordination, and I think that's widely accepted as where we're going.