The race to push artificial intelligence (AI) beyond its current limits is on. Researchers and entrepreneurs are working tirelessly to overcome the constraints of soaring energy costs and increasingly difficult breakthroughs. Their efforts focus on developing more energy-efficient models, algorithms that demand less computational power, and more effective data training methodologies to reduce operational expenses.
The stakes in this technological arms race are high. Companies that succeed in advancing AI past its current limitations stand to gain enormous economic and strategic advantages. They will likely set industry standards and attract investment and top talent.
Countries that dominate AI could also strengthen their geopolitical standing. Jim Covello, the head of stock research at Goldman Sachs, has become a leading AI skeptic on Wall Street.
The race to innovate AI
In a recent paper, he challenged whether businesses would see a sufficient return on the estimated $1 trillion in AI spending in the coming years. Covello argued that generative AI, which can summarize text and write software code, makes so many mistakes that it is questionable whether it will ever reliably solve complex problems. Despite the skepticism, US technology stocks, including those related to AI, have not been swept up in a financial bubble.
These companies are expected to continue driving returns for investors. However, a small number of tech stocks account for a disproportionate share of market capitalization, posing potential risks. Investors should diversify their exposure to improve risk-adjusted returns and gain access to potential winners in smaller technology companies and other market sectors, including those in traditional industries.
Diversification is essential to mitigate risks from market concentration and capture future growth opportunities. The AI landscape is rapidly evolving, and its broader implications could reshape numerous aspects of society, from healthcare and education to transportation and entertainment. As the race to advance AI continues, it remains to be seen which companies and countries will emerge as the winners in this transformative technological revolution.
