Season 5, Post 45: One year on…

Hard as it is to imagine, tomorrow marks the first anniversary of the commercial launch of ChatGPT. For many (including your author), using it and other Large Language Models has become part of daily life. How AI – there is now no longer any need to explain that the term is an abbreviation for artificial intelligence – will impact us all has become a standard dinner party conversation. With every technological step-change it is crucial to separate hype from reality. To this end, we recently discussed AI with three different experts, all of whom shared fascinating perspectives on its impact and evolution.

There’s been “an AI frenzy” in the last year, according to Heptagon’s Head of IT, Marldon Smalling. In his view, “everyone’s trying to sell an AI system.” Sure, “if you aren’t implementing AI, then you’re leaving yourself exposed” – a sentiment with which it is hard to disagree – but there is also a high logic in partnering with trusted and established businesses. Microsoft and its set of Copilot tools may have a clear structural advantage in this respect, being easy to integrate with their existing Office suite. Marldon also highlighted the importance of staff training in respect of using new tools and the need for a recognition that AI has “no emotions, no soul.” Check everything generated.

Needless to say, interest in all things AI has been beneficial for a business such as ASML. Marcel Kemp, ASML’s Investor Relations Director, described AI as “a driver for long-term growth.” Think of AI as being “smart software… that runs on hardware.” This implies more semiconductor chips, which implies more demand for ASML’s advanced lithography machinery. With an annual R&D spend equivalent to ~14% of revenues (or €4bn), it was also reassuring to hear from ASML how it is increasingly integrating AI, machine learning and deep learning into its research processes. “Better models mean better data”, according to ASML.

AI will allow us to go “faster and better” was a view also enunciated by Dr. Markus Leippold, a visiting researcher at Google with an academic background at the University of Zurich. We listened in to a presentation of his where he nuanced the hype around AI by reminding us that ultimately we are just working with “big mathematical models.” These serve a purpose in structuring information to create “meaningful theses”, particularly in a world where new data are produced daily. Despite the transformational power of AI, Markus warned not only about hallucination risks (where models generate incorrect answers) but also the heavy energy consumption required to run such models effectively.

The conclusion we draw from these diverse insights is that AI has the potential to be a game changer for both businesses and individuals, but only if developed appropriately and applied with human oversight. Expect only to hear more on these topics over the coming year.

29 November 2023

The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Heptagon Capital is an investor in ASML. The author of this piece has no personal direct investment in the business. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.

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Alex Gunz, Fund Manager