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Artificial intelligence: A real game changer

After decades of expectation, machines that think, learn and create are poised to transform the economy, the markets and our lives

ARTIFICIAL INTELLIGENCE (AI) HAS RIDDEN WAVES of public excitement, skepticism and fear since the 1950s.1 The skeptics, it seems, may soon be silenced. When ChatGPT — a language-processing chatbot capable of synthesizing reams of information and generating human-like text in response to queries — became widely available to consumers for the first time in late 2022, it was immediately apparent that a tipping point had been reached.

Just ask ChatGPT. Here’s the response we got — within seconds — when we questioned whether all the hype around AI is justified: AI “holds immense potential to drive innovation, improve decision-making processes and tackle complex problems across various fields, positively impacting society.” Clearly, modesty isn’t one of the bot’s “character” traits.

Human observers agree. “AI should transform the global economy as electricity and the steam engine did in their own times,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Below, Hyzy and Haim Israel, head of Thematic Investing for BofA Global Research, discuss the economic and market implications of the coming AI revolution.

Why is this finally AI’s breakthrough moment?

Chris Hyzy, Chief Investment Officer, Merrill and Bank of America Private Bank says “AI is going to transform the global economy as surely as electricity and the steam engine did in their own times.”

Put simply, it’s the perfect marriage of technology and need. “More data is created in a single hour today than in an entire year two decades ago. Yet only about 1% of data is being captured, used and stored,” says Israel. “Until now, AI could read and write, but not understand content. That’s rapidly changing,” he explains.  The onset of generative AI (GAI) systems such as ChatGPT  enables machines to understand human language and produce human-like dialogue and content.

GAI systems are capable of generating new text, images and other media — think research reports, news items, speeches, poems, songs, videos, computer programs, you name it — from existing data. This technological leap is creating an “iPhone moment” for AI, democratizing data by making it available to billions of people through a growing array of commercial uses, says Israel.

How will generative AI change the economy?

“As the technology improves, its primary benefits expected include higher productivity, cost efficiencies, as companies increasingly turn to GAI for content creation, software development, marketing and sales and customer service,” Hyzy says. These capabilities will likely cut across industries and should benefit consumers as well as companies, he adds.

Sources, from left to right: BofA Global Research, “Me, Myself and AI — Artificial Intelligence Primer,” February 28, 2023; IDC as of May 2024; and PwC as of September 2017.

Global IT spending associated with AI software, hardware and services will likely reach $521 billion by 2027, compared with $180 billion in 2023.2 According to some estimates, AI will contribute more than $15 trillion to the global economy by 2030.3 “Funding for AI development is pouring in from corporate and individual investors, as well as governments,” Israel adds.

What geographic regions and economic sectors are likely to benefit the most?

Haim Israel, head of Thematic Investing for BofA Global Research says “Until now, AI could read and write, but not understand content. That’s rapidly changing.”

“The U.S. and China, already the world’s two largest economies, are likely to experience the greatest economic gains from AI,” Israel says. Together, China and North America will account for about 70% of the global economic impact of AI by 2030. In fact, PwC estimates that AI will boost the GDP of China by a little over 26% by 2030, and of North America by 14.5%.4

Among sectors and industries, information technology should be a clear winner, with software development, semiconductors, data centers, cybersecurity, search engines and more expected to derive benefits. “Beyond software, major infrastructure upgrades will be needed to support the massive flow of information,” Hyzy says. Industries ranging from education and healthcare to aerospace and the law should also be transformed, Israel adds. In pharmaceuticals, “AI could help screen new drug compounds to predict their success rates, or identify the right candidates for drug trials,” he says. In the law, “AI can write legal documents and summarize cases.”

Is AI likely to disrupt the labor market?

As with any major technological shift, the onset of AI is bound to shake up some professions and may eliminate some occupations. In the past, such shifts have mainly eliminated manual jobs, such as production-line manufacturing. What’s different this time is that AI is capable of handling many tasks associated with higher-end professions. “But predictions of wholesale job losses are likely overblown,” Hyzy believes. “Advancements don’t just eliminate some jobs; they create whole new industries, businesses, skill sets and careers.”

What other potential risks does AI pose?

ChatGPT, when asked if AI poses a threat to humanity says “We should be vigilant in ensuring ethical development and responsible deployment of AI systems.”

The widespread accessibility and use of ChatGPT and other GAI systems dramatically increase the risks of cyberattacks and fraud, Israel notes. As technology gets better at adopting human language and creating images, the risks of identity theft, for example, will only rise. The technology also presents new challenges in terms of privacy, as powerful AI systems have unprecedented ability to collect, use and potentially misuse data about private individuals.

In July 2023, the Federal Trade Commission launched an investigation into the security practices of the startup that produced ChatGPT5 and it continues to make inquiries around partnerships and investments involving generative AI companies.6 But effective barriers may be beyond the power of human security experts —  in other words, AI may be needed to erect barriers against AI. Other challenges: maintaining intellectual property rights as AI reads and adapts existing text and images. And AI creators will also have to work hard to eliminate cultural biases from creeping into programs, Israel says.

How could investors benefit?

The promise of AI helped to lift markets in 2023. But investors may now need to invoke a quality not normally associated with rapid advancements: patience. “While the technology will surely accelerate, we are still very much in the pregame phase with GAI and other forms of AI,” Hyzy says. Diversification, a good idea for any investor, is especially important for those considering new technologies.

As for larger questions of AI’s potential threat to humanity, the technology itself offers a cautionary but hopeful perspective. Asked if humans should worry about AI taking over the world, ChatGPT responded, “No, but we should be vigilant and proactive in ensuring ethical development and responsible deployment of AI systems to mitigate potential risks.”

For more insights, read “Artificial intelligence … is intelligent” from BofA Global Research, and “Decoding Artificial Intelligence and its Potential Asset Management Applications” from the Chief Investment Office.

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