I, Advisor

DOUG By Guest Blogger Doug Rowat

I’ve always been fascinated by chess. I’m a terrible player myself, but I understand the game enough to at least appreciate the brilliance of truly great players. I’ve also followed the career of grandmaster Garry Kasparov my entire life.

As a result, I remember how shocked I was when he lost his epic battle to the IBM chess supercomputer, Deep Blue, in 1997 as well as him famously walking away from the table exasperated, arms in the air, after losing the deciding game. Kasparov fought hard, but IBM had finally created a computer that was able to accurately foresee future possibilities as skillfully as the human brain and successfully anticipate Kasparov’s moves. In other words, it had created a learning machine so advanced that it was able to defeat, for the first time, a reigning world chess champion.

Kasparov (eventually) was able to have a sense of humour about the loss (https://www.youtube.com/watch?v=cUqXr9Jlhwc), but the event undeniably marked a stunning ‘rise of the machines’ inflection point and was a huge advancement for artificial intelligence (AI).

Today, AI surrounds us constantly (talked to Siri lately or had Netflix suggest a movie for you?). UK researchers have even created a computer that can independently compose catchy folk songs and Bob Dylan himself half-jokingly suggested a musical collaboration with IBM’s Watson supercomputer.

It’s fascinating also that even though US automotive stocks have done incredibly well this year, Tesla has more than doubled the return of GM (65% versus 30%, respectively). The reason, of course, is that Tesla is also viewed as a technology company with perceived early-mover advantage in AI-fueled, self-driving cars. Tesla’s self-driving promises even recently drew the ire of a GM executive who called Tesla CEO Elon Musk “full of crap”. I don’t know if this is true or not, but it’s rarely a good idea to tell a visionary entrepreneur that they can’t do something. Steve Jobs, I’m sure, was told a few times that he would never be able to combine a camera, music and video player with a phone.

Research firm Gartner predicts that by 2020 the average person will have more conversations with a virtual assistant than with his or her immediate family. Gartner also predicts that by the end of the decade, AI will be a top-five investment priority for more than 30% of CIOs. And another research firm, International Development Corporation, estimates that worldwide investment in AI will rise from US$8 billion in 2016 to more than US$47 billion by 2020. Basically, computers are no longer going to be built simply to gather and process data more quickly—they’re going to be built to evaluate the data more effectively and actually make the decisions for us. In other words, eventually, you’re going to simply have to trust your AI-powered car to stop at a red light on the way to the grocery store.

Naturally, of course, there are investment opportunities. Global X, for example, has a Robotics and Artificial Intelligence ETF (BOTZ) and the chart below indicates its impressive performance thus far. We don’t currently own this ETF in our client portfolios, but we have plenty of other exposure to the technology sector. AI also, of course, is not without risk. Government regulation is lacking and, if not introduced thoughtfully, could cripple the sector. AI pure-plays are also difficult to find as AI is usually only a part of a large technology firm’s myriad other projects. Ethical concerns also abound. For instance, what effect would AI have on the labour market if self-driving vehicles actually became practical? Or, on a more immediate level, what would happen if a self-driving car struck a pedestrian and just kept on driving?

The World Economic Forum also speculated on the following doomsday, Terminator 2–type scenario:

Imagine an AI system that is asked to eradicate cancer in the world. After a lot of computing, it spits out a formula that does, in fact, bring about the end of cancer—by killing everyone on the planet. The computer would have achieved its goal of “no more cancer” very efficiently, but not in the way humans intended it.

There’s also the eerie possibility of recreating a loved one based on their historical cyberspace presence as one Russian woman, who worked at an AI startup, did in 2015 after her close friend was killed in an accident. ‘He’ continued to send her texts long after his death. How’s that for spooky as we head towards Halloween?

Global X Robotics & AI ETF (BOTZ-US, White Line) vs S&P500 (Orange)

Source: Bloomberg; Returns since the Sept.13, 2016 inception of BOTZ

However, AI, even with all these creepy potential consequences, is the future. And I suspect that very shortly we’ll be unable to distinguish whether a customer service representative we’re talking to regarding, say, our water or hydro bill is, in fact, a human or a computer.

Trust me on this prediction. Assuming, of course, that me is even me?

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.