While traditional AI has been around for years, generative AI is expected to make a significant splash on the global scene in the years ahead, with predictions from Morningstar pointing to a dramatic transformation, which will see global revenues from generative AI expand from US$35 billion this year to US$125 billion by 2029.
Speaking at the recent Morningstar Investment Conference, Dan Romanoff, senior equity analyst at Morningstar, said from an investment perspective, “there’s certainly a lot of opportunity there” as the market continues to evolve and expand.
“It’s kind of funny because ChatGPT was introduced about two and a half years ago, then generative AI exploded onto the scene and you went from 0 revenues to US$16 billion in a couple of years,” he said.
“But all of the enterprise use cases so far have been pilot, it’s all been experimental and so you haven’t really seen a lot of large scale deployments … And so enterprises are a little concerned with the safety of the content that’s being produced,” he said, adding that once that hurdle has been overcome, the potential for growth is exponential.
“We’re really early in the journey here … There is a real market here. Why wouldn’t you want to be exposed to something that is possibly growing 100 per cent year over year?”
Unlike previous hype-driven tech cycles, the current AI boom is grounded in real-world applications already delivering measurable value, the senior equity research analyst said, warning that “if you’re not investing to be a leader in generative AI, then that’s going to be a problem in five years” -– with global revenues now doubling annually in a trend driven by substance, not speculation.
“Pretty much everything that you can think of that involves human interaction has a way to either improve efficiency or use an AI agent in place of a human,” he said. “The future is bright.”
Adoption is currently gaining momentum in sectors such as customer service, where firms like Salesforce have begun integrating AI-powered tools. Moreover, in software development, AI’s impact is becoming increasingly visible, with some estimates suggesting that artificial intelligence may now generate up to a third of the code in certain projects.
The tech giants, such as Microsoft and Google, are at the forefront of this shift, with their significant investments in cloud computing and AI capabilities positioning them as central players in the unfolding AI revolution – as well as companies worthy of investors’ consideration for AI exposure.
“They both offer upside to where the stock is trading now … Those are a couple we like,” he said, adding that Nvidia rounds out Morningstar’s top three bullish stock picks.
But despite his optimism around generative AI’s growth potential, Romanoff cautioned that the landscape remains complex. He explained that AI models are being commoditised and that the cost per token – the unit of computational usage in AI platforms – is falling significantly.
For investors, this raises important questions about the long-term ceiling on profitability in the AI value chain and underscores the importance of understanding the complexities within the value chain.
Economic factors such as trade disruptions and tariffs add another layer of uncertainty, but Romanoff noted that software and cloud providers appear relatively insulated from these risks.
While AI has emerged as an exciting investment theme, fund managers are also utilising the tech to streamline their business operations.
Speaking at the recent Stockbrokers and Investment Advisers Association conference, Armina Rosenberg, co-founder of Minotaur Capital, explained that the firm’s flagship Global Opportunities Fund utilises a technology-driven, AI-led approach to investing.
The global equities fund, launched in May 2024, integrates fundamental analysis with proprietary AI and large language model tools to enhance market analysis, idea generation and portfolio construction.
“We use AI for absolutely everything at Minotaur Capital,” Rosenberg said. “Part of that is because those plug-and-play tools are not available right now, so what we’ve had to do is build our own. Our tool is called Taurient.”
Looking at AI adoption in the investment management industry more broadly, Rosenberg compared it to the rapid use of Microsoft Excel in the 1990s.
A report from the World Economic Forum earlier this year found financial services employees worldwide are at the forefront of embracing digitisation and automation.
