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  • Writer's pictureTania Tugonon

Artificial Intelligence: AI Insights

February 15, 2024


Thoughts on AI


This post was initially drafted on December 15, 2023, but sat on the shelf before being posted to the website.


I used to float, now I just fall down

I used to know but I'm not sure now

What I was made forWhat was I made for?

Takin' a drive, I was an ideal

Looked so alive, turns out I'm not real

Just something you paid for

What was I made for?

'Cause I, I

I don't know how to feel

But I wanna try

I don't know how to feel

But someday, I might

Someday, I might


Select Song lyrics of "What Was I Made For?" by Billie Eilish and FINNEAS


Artificial Intelligence, Generative AI, is having a moment. And it has me thinking about the hype, use cases, future, ethics of its use, and applications.


I am a novice on Generative AI. Like other business owners and really anyone in business and academia, I am doing all I can to learn about the subject matter and opportunities.


I am using free versions of ChatGPT and Anthropic and need to try out some of the paid subscriber capabilities as a next step. I am beginning to use the tools, but right now I am at the novice “feels like a new version of Cliff Notes” stage (at least for me).


When I was growing up, I remember images of Cliff Notes on the shelves at Borders or Barnes & Noble. I was always afraid to buy them. Would it be considered cheating? Wouldn’t I be cheating myself? Would I get in trouble with my parents, and teachers, or be embarrassed at school? I remember being so tempted to get a hold of these in high school, but never felt comfortable enough to buy. (A picture for those too young to ever see these.)



As I use basic AI tools to write content summaries or highlights of long-form docs, I have similar thoughts and questions. Should I let readers know that I am using AI for writing a piece of content? What is the etiquette? What are the new expectations?


I am figuring this out, but have come to realize that there is no stopping the AI train. Things are going to be different going forward.


 

Generative AI

Is It All Hype or Is It Here to Stay?


AI has been a popular topic recently (see above chart from IOT Analytics on what CEOs have been talking about - so many AI topics!). The AI discussion and debate on its effects on workforce productivity and the economy can be felt more than it ever has in history.


A significant development in the AI sphere is the emergence of generative AI (GAI). When the language-processing chatbox ChatGPT first came around in late 2022, it was met with both excitement and skepticism. Not long after, it stirred a discourse on ethics and its implications for the labor market as AI started to get more widely accessible. Is GAI just a frenzy or is it here to stay?


As AI interest and use cases grow, a surge in investment activity in AI could eventually result in a significant impact on GDP, according to Goldman Sachs Economics Research’s projections.



Moreover, in Gartner, Inc.’s poll of 2,544 executive leaders earlier this year, it was reported that 45% of the respondents have increased their AI investments since the publicity of the Generative AI tool ChatGPT.


Understanding Generative AI


Generative AI or GAI, as per Harvard Business Review, is described as “a new type of artificial intelligence that leverages machine learning to autonomously create different types of original content, including text, images, and music. It creates this content by using neural networks — deep learning algorithms inspired by the human brain — to understand and replicate patterns in existing data.


Among the other applications of GAI include OpenAI’s image-generating AI DALL-E, Waymo’s computer vision and deep learning for its self-driving cars, and Adobe Creative Cloud’s image generator.


How Will GAI Help the Economy?


GAI has a strong contribution to workplace productivity and efficiency. Automating repetitive tasks, reducing manual effort, and assisting in decision-making and brainstorming are among the ways it helps businesses and entrepreneurs, leading to economic growth.


A KPMG survey found that 77% of executives anticipate that GAI’s impact will continue to grow in the next three to five years compared to any other emerging technology. The survey implies that GAI is value-adding and is more than a fad.


Moreover, according to Goldman Sachs Research, As applications incorporating advancements in natural language processing become integrated into businesses and society, they have the potential to boost global GDP by 7%, equivalent to nearly $7 trillion, and elevate productivity growth by 1.5 percentage points over a decade.


What Do the Figures Show?


According to a report by Menlo Ventures, investments in generative AI are relatively modest at $2.5 billion this year, a stark contrast to the substantial budgets allocated for traditional AI ($70 billion) and cloud software ($400 billion) within enterprises.


Despite its small share, the contribution of generative AI investments to the overall increase in AI spending is noteworthy. In the build-versus-buy scenario, the prevailing trend in today's business landscape is purchasing, with 80% of survey respondents indicating the procurement of third-party generative AI software.



The pace of enterprise AI adoption mirrors the gradual uptake observed in the early stages of cloud computing integration, the report suggests. This could be a challenge for startups in the near term.


Many initial entrants are grappling with the need to distinguish themselves, encountering difficulty in gaining traction. Regardless, there is more to explore in the space. There are innovations to look out for as GAI continues to make an impact on a wide range of professions and create new investment opportunities.


 

Charts of Interest

PE Volumes Continue to Accelerate


According to EY’s Private Equity Pulse: Five Takeaways from Q3 2023, PE deal activity continued to increase. PE firms landed 93 deals with a total volume of $101 billion, a 63% increase from Q1 2023.



Zooming into sectors, tech remains to be the key sector for PE as of September 2023. Moreover, it accounts for one-third of PE activity by value over the last 12 months.




 

Economic Indicators


The Congressional Budget Office (CBO) routinely updates and provides data on economic forecasts to align projections with recent economic developments and prevailing legislation.


Here are the highlights of its report delving into the CBO's latest economic projections, offering insights into the economy's trajectory until 2025, based on economic developments as of June 22, 2023.


📌 Gross Domestic Product


The CBO's projections reveal sluggish growth for most components of the Gross Domestic Product (GDP) in 2023, with both real residential investment and real inventory investment experiencing declines. However, post-2023, growth gains momentum as monetary policy eases. Real GDP is anticipated to rise by 1.5 percent in 2024 and by 2.4 percent in 2025.


📌 The Labor Market


Through the culmination of 2024, the pace of employment growth diminishes, leading to an increase in the unemployment rate, a decrease in the labor force participation rate, and a deceleration in the growth of wages and salaries. The unemployment rate is projected to reach 4.1 percent by the close of 2023 and 4.7 percent by the conclusion of 2024 before a slight reduction to 4.5 percent in 2025. Payroll employment is expected to decline by an average of 10,000 jobs per month in 2024 but rebound with an average increase of 6,000 jobs per month in 2025. Positive shifts in labor market conditions are foreseen in 2025, driven by accelerated growth in real GDP, resulting in a lower unemployment rate and increased employment growth.


📌 Inflation


In 2023, inflation slows as the factors contributing to a rapid demand increase compared to supply in the pandemic aftermath gradually alleviates. Although the inflation rate continues to surpass the Federal Reserve's long-term goal of 2 percent between 2023 and 2025, there is a trend toward convergence as inflation gradually decreases throughout the specified period.


📌 Monetary Policy and Interest Rates


According to the CBO's projections, the federal funds rate is set to rise to 5.4 percent and remain at that level until the first quarter of 2024. In the second quarter of 2024, the Federal Reserve commences the normalization of monetary policy by reducing the target range for the federal funds rate. This reduction begins in the first half of 2024, coinciding with a cooling inflation trend. The federal funds rate is expected to decline from 5.4 percent in the fourth quarter of 2023 to 4.5 percent in the fourth quarter of 2024 and further decrease to 3.6 percent in the fourth quarter of 2025.


View the full report here: https://www.cbo.gov/publication/59258.

 

Closing


I once saw Jonny Greenwood of Radiohead at the Santa Monica Pier historic carrousel ride. I was with my kids, and he was with his family as well and we happened to be on the ride at the same time. I did not say hello (not the LA thing to do). I typically am not one to recognize musicians, lead guitarists, but he has very distinct facial features, and as a fan of Radiohead since college, it was a cool occurrence.


And I leave you with this AI version of Frank Sinatra singing Creep. Honestly, I liked it (we know it is AI). Frank Sinatra was amazing. Now I am curious about which investment firm owns Frank’s music royalties (this may not be true) and will be seeking to monetize with AI.




 


We aim to share market insights and ideas, and some fun interests via this newsletter.


We want to build community so please touch base.




 

Disclosure

Rainmaker Securities, LLC (“RMS”) is a FINRA-registered broker-dealer and SIPC member. Find this broker-dealer and its agents on BrokerCheck. Our relationship summary can be found on the RMS website. RMS is engaged by its clients to make referrals to buyers or sellers of private securities (“Securities”). If such client closes a Securities transaction with a buyer or seller so referred, RMS is entitled to a success fee from the client. Such success fee may be in the form of cash or in warrants to purchase securities of the client or client’s affiliate. RMS or RMS representatives may hold equity in its issuer clients or in the issuers of securities purchased or sold by the parties to a transaction. This communication is confidential and is addressed only to its intended recipient. This communication does not represent an offer or solicitation to buy or sell Securities. Such an offer must be made via definitive legal documentation by the seller of securities. Investments in the Securities are speculative and involve a high degree of risk. An investor in the Securities should have little to no need for liquidity in the foreseeable future and have sufficient finances to withstand the loss of the entire investment. RMS does not recommend the purchase or sale of Securities. Potential buyers or sellers of the Securities should seek professional counsel prior to entering into any transaction.

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