Artificial intelligence (AI) firms have continued, in the main, to be among the market leaders in the last quarter, with share prices of some of the leading AI beneficiaries falling and then recovering as it became clear the US was changing tack on monetary policy.
This change, which in all likelihood will see interest rates cut rather than raised, should extend the rally we have seen recently, with global equities buoyed by expectations of monetary easing in the US, broad resilience in corporate earnings and hopes the US and China will be able to come to some resolution on their trade dispute.
Lower interest rates are good for long duration assets like quoted artificial intelligence companies, as larger-than-expected rate hikes pose the biggest threat to such businesses.
Longer term, we see AI as a complement to human endeavour rather than a direct replacement for it, as we regard AI as being a better-than-human solution for laborious, repetitive or time-consuming tasks. As such, it is becoming more embedded in our way of life.
To give just two examples, there is a significant shortage of radiographers within the NHS at the moment; some of that gap could be filled by AI, particularly for routine assessments, as the evidence suggests that, on average, AI is better at reading scans than human radiographers are.
Climate change and food waste are two other big issues currently, and the evidence here suggests food wastage at 'intelligent' food retailing platforms such as Ocado is minimal, with only 0.02% of the total food in the system ending up in landfill; wastage rates at supermarkets are typically much higher. The benefits of using AI to cut waste are clear.
The giants are getting bigger
If the trends are in place for AI to thrive, and we think they are, then the cycles we are seeing now are probably only in their infancy.
For listed companies, this means while many of the leading lights in the sector are already among the largest companies in the world, they have the potential to increase in size as the cycle continues.
Many investors will question this as companies pass through what are little more than arbitrary markers.
Microsoft went back through the $1trn mark recently, for example, having rallied from a June low, and it is likely to be followed by some other AI giants in due course.
For some that means it is now large enough, but a look through the history of markets shows the flaws in this argument.
As the graphic above shows, the average size of the biggest companies in the world has been increasing for the last century.
While the actual names are clearly different to 100 years ago, the important point to consider is that the concentration of market capitalisation at the very top of the market is not uniquely high.
The largest company in 1967 was four-and-a-half times the size of the tenth-largest company at that time; by 2017 it was less than three-and-a-half times the size.