7 min read

AI, AI, Oh!!

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Hi there!

Welcome to mid-January, the season when most of us are paying off our holiday debts while top executives rack up hefty expense reports for their travel to the World Economic Forum’s annual meeting in Davos, Switzerland. Granted, they say it is no vacation (not that the skiing is any good this year anyway), as attendees typically spend their days in back-to-back meetings, but we’re not convinced.

Business leaders and heads of state gather annually in Davos to talk about the biggest issues facing the world — and that’s a pretty long list this year. Since we (and we’re guessing you) did not get an invitation, we’ve pulled together some of the highlights so far. A new WEF report describes our current period as a time of “polycrisis” — a cluster of related global risks with compounding effects. From inflation to rising carbon emissions, businesses are navigating a seemingly never-ending list of challenges. Yet some journalists report that CEOs are staying upbeat about the future, and WEF reminds us that impact investors have a key role to play in solving the world’s problems.

In addition to the WEF white paper, a slew of reports and announcements have been released from this elite conference that may be relevant as you research companies that align with your values. A few highlights:

Evolve or die: A PwC survey reports 40% of global CEOs think their organization will no longer be economically viable in ten years if it continues on its current course, emphasizing the need to reinvent businesses for the future.
Business pulls off a three-peat: For the third time, the Edelman Trust Barometer found that business is the only global institution that people view as both ethical and competent.
Boosting EV battery transparency: Working with battery makers and electric vehicle companies like Tesla and Audi, the Global Battery Alliance unveiled a pilot of its battery passport, a public site where consumers can compare batteries on criteria like the use of child labor in mining.

There’s a lot more happening this week outside of Davos. We highlight some other news below, including taking a deep dive into some of the companies embracing AI and how this could impact who and what you invest in.

News you can use

Graphic of newspaper with magnifying glass

The world’s largest asset managers are “blocking progress” on climate and social issues despite public commitments, per a new report on shareholder voting. For example, BlackRock, Vanguard, and State Street changing their vote from “no” to “yes” could have resulted in the addition of paid sick leave for all 270,000 employees at TJX department stores, disclosures from Amazon about employee rights to unionize, and net-zero targets from energy companies such as Chevron, ConocoPhillips, and Valero. You may even be able to check out your own asset manager’s ESG voting performance.
While techies analyze the specs of Apple’s latest MacBook Pros, we’re reading the green highlights. Besides increased power efficiency, one-third of the 16-inch laptop is made from recycled materials (aluminum, rare earth elements, tin, gold, and plastic), and 97% of the packaging is fiber-based. Apple’s goal is zero plastic in its packaging by 2025.
Attention Type A personalities! The IRS will start accepting and processing 2022 tax returns on Monday, January 23. For the rest of you, there are three extra days to file this year since the deadline is April 18. If you own stocks and want to learn about the basics of filing taxes, our quick guide should help. Fortune has five ways you can prepare, including looking up tax credits on EV purchases or solar panel installations.
What’s in store for the economy in 2023? Financial firms say 🤔. A report from Goldman Sachs' Investment Strategy Group pegged the chance of a recession at basically 50/50 and warned of “heavy fog.” Meanwhile, in an article about big banks’ mixed fourth-quarter results, The Wall Street Journal quoted JPMorgan CEO Jamie Dimon as saying, “It may be a mild recession. It may not be.”

Asking for a friend….

We know there is a lot to think about these days, and it can sometimes be a bit overwhelming. To help with those nagging questions and so you have useful resources at your fingertips, here are few links to resources and past stories relevant in these turbulent times:

FWIW’s Guide to Long-Term Investing
Some of our favorite inflation-fighting strategies (and a few more)
Unpacking the ESG Alphabet Soup (including a link to our ever-growing glossary of common terms)
FWIW Guide to Cleantech Investing: Sectors to Watch (covering a dozen innovative sectors to anchor your research on sustainable investing options)
“Siri, What Is a Recession?”

Brainy computers

In the ‘80s, a dystopian sci-fi film called "Blade Runner" introduced the idea of a test the police needed to use to distinguish the dangerous robots from the humans. Today, a new chatbot has sparked the need for a similar test, except now it’s to help teachers grade homework assignments.

The free (for now) ChatGPT has made waves by introducing millions to the stunning capability of computers to simulate human conversation and answer complex questions. People have found dozens of ways to use the dialogue interface launched in November by San Francisco-based startup OpenAI.

ChatGPT can debug software code, write a completely original speech, and even explain Einstein’s theory of relativity to you like you’re six. For those who remember Ask Jeeves, it’s everything the valet could only dream of being, and it’s more comprehensive and intelligent than modern personal assistants like Siri and Alexa. It can answer follow-up questions, admit mistakes, challenge incorrect premises, and reject inappropriate requests. When we asked it how to invest in alignment with our values, within seconds it produced an impressive and actionable five-step strategy. Consider us shook.

ChatGPT is one of the latest in a long line of AI and machine-learning technologies. Unlike automation, which is software that follows pre-programmed rules, AI is a “thinker” that studies vast amounts of data and makes decisions. It’s in the computer programs recommending movies on your Netflix feed (ok, maybe that one needs a little work), along with those finding the best flight routes, tagging pictures on Facebook, and controlling customer service chatbots and self-driving vehicles. It can also be used to detect diseases in crops or to design drugs. The newer “generative AI'' niche is how we have a trippy new art form, troubling deepfakes, ChatGPT, and a way to self-populate the metaverse. Businesses are also finding creative ways to apply AI in their sustainability efforts, like energy efficiency, worker safety, and waste reduction.

Gaining momentum

An AI arms race is taking place as its disruption potential becomes clear. Calling it the “backbone” of the internet, Bank of America analyst Justin Post said it will be a catalyst for Big Tech stocks in the next five years and companies that can effectively utilize it will have competitive advantages.

Investors should note that AI poses risks, like enabling cyberattacks, exhibiting bias, and spreading misinformation, not to mention that, when the data is scarce or biased, it can miss the mark. Ironically, while AI can be used to advance methods of reducing emissions, it may also be a net negative for the environment in some cases, as it requires large amounts of data-center electricity, a topic we’ve covered previously. This month, MIT researchers determined that the computer power required to inform 1 billion autonomous vehicles, each driving for one hour per day, would generate about the same amount of carbon emissions as the entire country of Argentina (though the energy powering 🇦🇷 televisions as they watched Lionel Messi lead them to World Cup victory may have thrown these numbers off a bit).

How to invest in AI

Investing in internet giants is one way to gain AI exposure since they are heavily investing in it to strengthen their dominance. Microsoft is reportedly considering pouring $10 billion more into OpenAI (it has already invested $3 billion). Obviously rattled by this Google, which is working on its own ChatGPT rival and self-driving cars, published a paper this week outlining its own AI goals. Other giants include Meta, Salesforce, IBM, and Amazon. Bank of America’s Justin Post also mentioned Uber and Airbnb as possible beneficiaries of the AI trend.

Firms like Tesla, AeroVironment, and Mobileye are using AI to develop self-driving vehicles, and other markets, like insurance (Lemonade) and lending (Upstart), are also being disrupted by it.

For those concerned about sustainability and the environment, AI-powered smart utilities and buildings/homes are helping companies and their customers integrate renewable energy sources and improve efficiency. Some players include Johnson Controls, Stem, Limbach Holdings, Itron, and Vivint Smart Home. Agricultural equipment company John Deere has built an autonomous tractor and an AI system for precision weed killing. Others investing in precision agriculture include AgEagle Aerial Systems and Trimble.

Hardware and software companies that will power the AI trend, like high-end chip makers and computer networking innovators, may also be considered. "We believe NVIDIA still reigns supreme in the world of AI and accelerated computing with breadth and depth of offerings from hardware to a full software training/AI stack," said Mizuho Securities analyst Vijay Rakesh recently. Some AI software and solutions providers for everything from virtual makeup to analyzing Big Data include C3.ai, Perfect Corp, Palantir Technologies, Veritone, Elastic NV, and CrowdStrike.

For those seeking a simple, broad, and more international approach, there are several AI-focused exchange-traded funds, like the Global X Robotics & Artificial Intelligence ETF (BOTZ), ROBO Global Robotics & Automation Index ETF (ROBO), iShares Robotics and Artificial Intelligence Multisector ETF (IRBO), and First Trust Nasdaq Artificial Intelligence & Robotics ETF (ROBT).