Investors and Generative AI

Written by: Joslyn G Ewart, CFP®, Jay Llewelyn, CFA®

Telecom and Tech
Telecom and Tech are the sectors driving the capital markets so far in 2024. Entrust investors benefit from these sectors due to their diversified portfolios—primarily in their positions invested in large company domestic stocks, mutual funds and/or ETFs. More specifically, of the large company stocks in these portfolios, companies that are actively pursuing generative AI research make up between 7 to 10% of the portfolio holdings.

The AI Race
In this AI race, you may have noticed that Nvidia has become a household name (NVDA). It produces the chips required to build, develop, and/or utilize tools for generative AI development. For now, Nvidia seems to be the Generative AI winner, but we are early on in the game of AI development. No one knows how the process will play out over time, across a variety of industries.

For example, who else besides Nvidia might emerge in household conversation (or fade away) in the years to follow? Many companies are investing BILLIONS of dollars towards AI expansion and projects; investors need to recognize that it may be some time before many are able to realize a substantive return on investment (ROI).

Age-old Truism
Despite the fact that: Generative artificial intelligence (AI), or GenAI, is a type of AI that uses machine learning to create new content based on a prompt:

Content: Text, images, music, audio, videos, animation, 3D models, and more
Inputs: Text, images, sounds, animation, 3D models, or other types of data
Training: Can learn human language, programming languages, art, chemistry, biology, or any complex subject matter

And the fact that GenAI tools: Use foundation models—large AI models that can multi-task and perform out-of-the-box tasks, as well as tools that create new content by predicting what word, sound, or pixel would come next in a pattern…

The age-old truism remains: The quality of inputs affects the quality of outputs.

So Why Spend Billions?
The Summer Olympics can help us with this answer. The athletes who win Gold Medals (and Silver and Bronze!) are persistently on the lookout for ways to help themselves “out-perform” all other athletes. In business parlance this might be stated as “out-produce.” Out-produce is shorthand for “profit-more.” Just as corporations are always on the lookout for efficiencies that may open the door to higher profits, so does an athletic champion aim to rise above past performance.

If you are a reader who enjoys the technical expressions and calculations for improving one’s results—athletic or corporate, you may enjoy the material available with this production function link.

Please feel free to weigh in with your thoughts about generative AI and its impact on you. We may be reached at contactus@entrustfinancial.com or 610-687-3515.

Our Entrust Financial team welcomes your feedback and looks forward to our next conversation together!