Despite substantial corporate and investor interest, some argue companies have yet to see widespread benefits from AI integration.
Andrew Fleming, Schroders’ deputy head of Australian equities, said companies are increasingly aware they will be pressed on returns from AI investment, but “there’s really not much productivity benefit to be seen for it as yet”.
“The promise is over the hill,” he said on a recent webcast.
McKinsey estimates AI could unlock between US$11 trillion and US$18 trillion in value for businesses, particularly in marketing, sales and supply chain optimisation.
But for now, the impact has largely been confined to what MLC Asset Management’s chief investment officer, Dan Farmer, earlier described as “micro productivity” improvements such as automating emails, scheduling and drafting documents.
Namely, in a July article, Farmer opined that while the AI boom has driven huge capital inflows and soaring valuations for tech giants such as Microsoft, Nvidia, and Alphabet, most businesses adopting AI have so far seen little meaningful improvement in productivity or profitability, even as investors enjoy substantial share price gains.
He explained that AI is following the familiar “hype cycle” – initially inflated expectations, followed by a period of disappointment, before delivering longer-term gains.
“AI is an extraordinary technological force, but, like many major innovations, its commercial impact will take time to fully materialise. The current wave of exuberance has propelled certain companies to extraordinary heights, but the broader business community is still working out how to extract durable value,” he said.
Similarly, Fleming said: “For all the investment that has been made and the productivity savings that are spoken to and in some cases threatened, [it] could be dramatic for some companies, but actually, the evidence to that end is still very nascent and in most cases not apparent.”
Speaking on the webcast alongside Fleming, Martin Conlon, Schroders’ head of Australian equities, said many businesses find that initial labour savings are quickly offset by rising technology costs charged by major vendors such as Microsoft and Salesforce, leaving them in a “worst of all worlds” scenario.
“We just think companies need to be a little bit more honest about saying if you’re going to take labour out, that just goes straight out the door to a tech company as technology costs, there’s no productivity gain at all,” he said.
“I suspect Microsoft and associates aren’t planning on providing the service for free.”
Conlon also questioned the investment rush into data centres, which he described as energy-intensive, low-employment assets with commoditised returns.
“It’s hard to understand why no one wants to touch a private hospital or an electricity generation project, and they’re all jumping over themselves [for data centres]. The stories are winning at the moment,” Conlon said.
Yet AI continues to be a dominant investment theme.
At last month’s Australian Wealth Management Summit, Betashares investment strategist Hugh Lam highlighted substantial inflows into the provider’s tech-focused thematic exchange-traded funds (ETF), even as the sector remains highly volatile.
And indeed, ETFs have become a key avenue for investors to gain exposure to AI, with fund managers worldwide looking to capitalise on their popularity.
Most recently, Global X announced its new Artificial Intelligence Infrastructure ETF (AINF), which provides access to companies powering AI’s expansion – from data centres to energy systems.
“While chips and software dominate headlines, the physical backbone of AI is often overlooked. AINF provides dedicated exposure to the energy, materials and data infrastructure that make AI possible. The future is AI, but its foundation is infrastructure,” the fund manager said last month.
The ETF complements Global X’s existing AI offerings, including the Artificial Intelligence and Technology ETF, Robotics and Artificial Intelligence ETF, and Artificial Intelligence ETF.
Speaking alongside Lam at last month’s summit, Mike Zimmerman, partner at deep tech venture capital firm Main Sequence, agreed that infrastructure represents a major area of opportunity.
“The first is the infrastructure to make AI run more efficiently,” he said. “I think, probably, people know just how much data centres cost to power and how much computation and buildout is required to actually meet the demands of AI, so there’s a huge efficiency opportunity.”
But even as AI takes a more prominent place in investment portfolios, Farmer cautioned that given the wider economic impact is still uncertain, investors need to stay disciplined on valuations.
“The current wave of exuberance has propelled certain companies to extraordinary heights, but the broader business community is still working out how to extract durable value,” he said.
