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Innovating Industries is our new feature where we break down the innovations happening in a new or evolving industry and the potential private market investment opportunities happening with the growing businesses in the space.
Our first Spotlight takes a deeper look at a hot and growing industry – Artificial Intelligence (AI). AI has been the top trending industry by investors at Polysharp Investments Limited over the past several weeks. While AI has always garnered investor interest, the rise of generative AI after the launch of advanced chatbots has driven this resurgence of interest in the industry. [Disclaimer: A chatbot was NOT yet used to compose this article.]
AI is a broad topic and investors are interested because the impact could be wide ranging across diverse industries from healthcare to finance and retail. At its most basic, AI covers all technology and ability of machines to perform tasks that would normally require human intelligence, such as learning, problem solving, and decision making. Way more than just a chatbot. As our society moves to optimize productivity, automate repetitive tasks and increase efficiency, AI will play a key role in aiding that transformation1.
AI has applications in healthcare, finance, and retail, among other industries. In healthcare, AI has use cases including disease diagnosis and personalized medicine. In finance, AI can help in areas as diverse as detecting fraud and assisting with risk management. Similarly in retail, AI can be used for product recommendations and supply chain optimization2.
Let’s start with machine learning (ML), one of the most well-known subsectors. ML uses algorithms and statistical models to enable machines to improve their performance on a task with experience. ML is used in a wide range of applications, from image and speech recognition to natural language processing and self-driving cars.
Generative AI refers to machine learning algorithms which enable the use of existing data and files as training material for new content. This would allow generative AI models to create new text, files and pictures derived from their training data and relevant extrapolations of that data. This is an area of machine learning which has recently gained popularity and investment3.
Natural Language Processing (NLP) involves the use of AI to enable machines to understand and generate human language. NLP is used in several applications including language translation, sentiment analysis, and chatbots as well4.
The changing artificial intelligence outlook has had a significant impact on investments in the private markets. As AI technology becomes more advanced and more widely adopted, investors are increasingly looking for opportunities to invest in AI-related startups that have the potential to disrupt established industries and create new ones. In fact, TechCrunch highlighted the results of a McKinsey survey from early December 2022, which indicated that, “AI adoption at companies has more than doubled since 2017, with 63% of businesses expecting spending on AI to increase over the next three years. In February (2022), IDC forecast that companies would increase their spend on AI solutions by 19.6% in 2022, reaching $432.8 billion by the end of the year and over $500 billion in 2023.”5
This rising capital inflow will help to grow the overall market for AI and the companies that operate within the space. It is estimated that the overall industry will be worth $93 billion in 2023, up 12% from 2022 alone. While the investment expected is large, it is not particularly surprising considering the level of productivity expected from AI efforts in various industries. Per PWC’s analysis, “AI could contribute up to $15.7 trillion to the global economy in 2030, more than the current output of China and India combined. Of this, $6.6 trillion is likely to come from increased productivity and $9.1 trillion is likely to come from consumption side effects.”6 With that type of productive output, every dollar invested in an AI platform provides significant return.
However, the AI landscape is quite varied, and the area driving the most interest currently is generative AI, a subsector of machine learning. Per AltexSoft, “generative AI allows computers to abstract the underlying patterns related to the input data so that the model can generate or output new content.”7
Investment in Generative AI has catapulted – Pitchbook data indicates that venture capitalist investments in this subsector have increased by 425% since 2020 to $2.1B8. With recent advances in machine learning technology, these generative models are able to answer human prompts and provide relevant information based on historical training material. The use cases for this technology are immense and several other applications are already building on top of it.
OpenAI is a leading AI research company that focuses on developing and promoting safe AI. They offer a range of products and services, including the OpenAI API, which allows developers to access state-of-the-art AI models for natural language processing, computer vision, and other tasks. They also offer the buzz-worthy OpenAI GPT, a powerful language generation model that can be fine-tuned for a wide range of natural language processing tasks. Additionally, OpenAI offers the OpenAI Gym, a toolkit for developing and comparing reinforcement learning algorithms, and the OpenAI Baselines, a set of high-quality implementations of reinforcement learning algorithms9.
Other private companies in the AI space you should know about are companies such as Cogniac, that provides computer vision technology for industrial automation, and Vicarious, that focuses on creating AI systems that can think and learn like humans. There are also companies such as Nutonomy (owned by Aptiv), that makes software for autonomous vehicles, and Nauto, that provides self-driving technology for commercial fleets.
Several large technology companies also innovate in the AI space including OpenAI, Google, IBM, Microsoft, Amazon and Facebook, which are all focused on developing AI technologies across different sub sectors like natural language processing, computer vision, deep learning and others.
The scope and scale of artificial intelligence applications in private and public companies is extensive, and so is the overall opportunity. Given that AI can revolutionize the way we live, work and learn, it’s clear that we’re barely scratching the surface of its true potential. Whether it's through an investment in generative AI, NLP or any other form of machine learning, investors should take this opportunity to build a stake in this growing industry.