Schroders: Over $73bn invested in generative AI since 2015

Artificial Intelligence (AI) is revolutionizing the investment landscape, reshaping markets and creating new opportunities for savvy investors. With over $73 billion invested in generative AI since 2015, the impact of AI on the global economy is significant. Kondi Ngosi, South Africa Country Head at Schroders, sheds light on the investment expectations from the rise of AI and the strategies employed by Schroders to identify potential winners in this burgeoning sector. Ngosi highlights generative AI as a pivotal technological breakthrough, fueling what he calls the fifth industrial revolution. The vast potential of generative AI is evident in the staggering numbers projected by research firms, with estimates as high as $4 trillion in value creation opportunities. The exponential growth in investment capital pouring into this space, with venture capital firms allocating around $73 billion since 2015, underscores the immense interest in AI technologies. Schroders approaches the AI landscape through two key lenses: the AI tech stack and industry verticals. The tech stack encompasses the tools and frameworks that power AI applications, ranging from chat GPT in the application layer to companies developing infrastructure and models. Schroders focuses on specialist companies operating across all layers of the tech stack, ensuring a comprehensive investment strategy. Additionally, Schroders explores various industry verticals such as pharma, medical, legal, and fintech, seeking opportunities across diverse sectors. Despite the promising projections for generative AI, Ngosi emphasizes the early stages of development in this space, urging caution and thorough evaluation of investment opportunities. Schroders' approach to identifying potential winners involves strategic partnerships with leading venture capital firms globally. By collaborating with niche players focused on specific market segments, Schroders gains exposure to top generative AI companies and maintains a selective investment strategy. When assessing investment opportunities across regions, Schroders carefully evaluates business potential, management quality, and valuations. While Europe has historically offered attractive valuations, recent developments in the US and Asia present compelling investment prospects. Ngosi underscores the importance of balancing quality business ideas with favorable valuations to optimize investment returns. While solid earnings are crucial in traditional investments, Ngosi acknowledges the unique nature of venture capital investments, where earnings may not be immediately apparent. Evaluating the business models and growth prospects of portfolio companies becomes essential in determining the value of AI investments. As AI continues to redefine industries and drive technological progress, investors like Schroders navigate the evolving landscape with precision and foresight, leveraging the transformative power of AI to unlock value and drive sustainable growth in the financial markets.