Information technology was the best-performing sector in 2017, rising 37.6%. Following such a strong performance, is there further upside for the sector in 2018?
Artificial intelligence (AI) may be the answer. AI is a powerful driver of innovation and growth for the sector as its application spreads into all aspects of people’s work and leisure.
AI’s ability to perform tasks that typically require human intelligence – such as speech recognition, visualization, decision-making and automated categorization – has triggered a wide range of applications across different industries.
Citi analysts identify the usage of AI in several industries – financial services (particularly in payments), transportation, healthcare and discrete manufacturing.
AI in financial services
In the financial services industry, AI is used in fintech to assess credit quality, to price and market insurance contracts, to automate client interaction, to optimize trade execution, to aid regulatory compliance, to assess data quality and to detect fraud. The latter is an important component in payments as it helps companies comply with anti-money laundering regulations in an efficient and timely manner.
AI can also help reduce transaction fraud in real time by identifying fraudulent patterns and differentiating fraudulent from non-fraudulent activities.
AI in transportation
AI-piloted planes and driverless cars are two examples of how AI is transforming transportation. Robotic piloting in commercial jets as well as driverless cars can increase travel efficiency and reduce human error that compromises safety.
For commercial airlines, replacing human pilots with AI technology can significantly reduce airlines’ expenses and increase profitability. Lower pilot downtime can also lift aircraft utilization rates and raise efficiency.
Citi analysts expect the introduction of AI technology to benefit airlines and robotics companies.
AI in healthcare
Citi analysts also think that AI will be increasingly deployed in healthcare. Currently, AI is helping to diagnose certain early-stage cancers such as melanomas.
According to Live Science, pathologists beat robots by identifying 96% of the biopsy samples with cancer cells. But pathologists – combined with AI – can identify 99.5% of such cases.
The use of AI for clinical decisions can greatly help reduce diagnostic errors and automate examination. International Data Corporation (IDC) predicts that 30% of providers will use AI to help analyze patient data by 2018.
AI in manufacturing
Within the manufacturing industry, robots have been used to replace humans through the automation of factory floors.
New developments in end-of-arm tools (EOAT) for robots aim to mimic the function of the human hand and may allow robots to perform more sophisticated jobs and functions.
However, Citi analysts estimate that this enhancement will take at least another 10 years as EOATs are currently nowhere close to possessing the dexterity of the human hand.
The International Federation of Robotics expects the overall industrial robotics market (in unit terms) to grow at an average 13% annually between 2017 and 2019, where “compact and easy-to-use collaborative robots will drive the market in the coming years”.
Citi expects companies dealing with collaborative robots, control software, machine vision and sensing, as well as components and controls, to benefit from the introduction of AI in manufacturing.
Navigating the broad AI universe
PwC estimates that AI could add US$15.7tr to global GDP by 2030. With AI expected to have such a significant impact on the global economy, investors are likely to be keen to gain some exposure to the AI sector.
As measured by Citi analysts, the total returns since January 2009 of a basket of 117 AI stocks is more than twice that of MSCI World (see Chart 1).
For investors looking to invest in the AI sector, selectivity is critical. While the market size for AI solutions is forecast to grow at a 55% compound annual growth rate (CAGR) from US$8bn in 2016 to US$47bn in 2020, only few companies will succeed and thrive.
Investors who do not have the time and expertise to research companies within the AI universe can consider relying on financial professionals who adopt a more diversified approach. Patience may also be required as the benefits of new technologies may take longer than expected to materialize.
- AI’s ability to perform tasks that typically require human intelligence – such as speech recognition, visualization, decision-making and automated categorization – has triggered a wide range of applications across different industries. Citi analysts identify the usage of AI in several industries – financial services (particularly in payments), transportation, healthcare and discrete manufacturing.
- PwC estimates that AI could add US$15.7tr to global GDP by 2030. The market size for AI solutions is forecast to grow at a 55% compound annual growth rate (CAGR) from US$8bn in 2016 to US$47bn in 2020.