Before our trip to Boston and New York, fellow Fund Manager Will McIntosh-Whyte and I knew AI would be one of the focus areas in every meeting. We even used it to plan our trip! It’s dominating the investing landscape and our daily lives as portfolio managers. What is the potential? Is it a bubble? What are companies actually doing to implement it, and are the benefits real?
We met a dozen businesses across healthcare, finance, technology, and the industrial sector, so this was a perfect opportunity to get some answers to some of those questions. A lot of these companies are also leaders in their respective fields, so we knew that any discussion around AI was likely to be representative of where their wider industries were headed.
Last night I had a dream about capex
The first thing that surprised us was just how much each company talked about AI and how clearly they could explain how it was being pulled into daily operations. Sometimes it’s easy to get drawn into a false narrative just looking at your Bloomberg screen or by hearing information third hand. Going to see the companies we invest in gives you context and detail, something that feels pretty critical when it comes to AI investment.
There’s a huge amount of money flowing into the technology from the handful of companies that dominate the American AI landscape, as you can see from the chart of planned capital investment below.
As truly monumental as that AI capex, it’s arguably just the tip of the iceberg.
This doesn’t account for all the seed money, venture capital and IPOs for businesses that are leveraging these models and data centres to create AI tools for every use you could think of. Neither does it encapsulate all the investment in making the chips themselves – big factories like Taiwan Semiconductor Manufacturing Company that are increasing their capacity – or those building the data centres to put them in, the power to run them and the water treatment to efficiently cool them without degrading the environment. This is not solely the purview of the AI giants.
We’ll make this data come through
Our holding Boston Scientific makes a range of different heart-based medical devices, from valves and artery-supporting stents to diagnostic tools. Its executives explained how AI is already being integrated into medical imaging for its products. Fellow medtech business (and portfolio company) Thermo Fisher Scientific is only an hour up the road, closer to Boston. Thermo supplies equipment, chemicals and analytical tools to laboratories around the world. It has launched a strategic collaboration with ChatGPT developer OpenAI, believing it will radically alter drug discovery success and timelines.
In both cases, senior managers have the responsibility for driving AI integration. Healthcare could be one of the biggest beneficiaries of AI investment as it can make diagnosis and monitoring quicker, more accurate, and less labour-intensive. It is also well-suited to develop potential cures for diseases that are currently untreatable, widening the pipeline of new opportunities while keeping development costs in check.
Universal bank Morgan Stanley, which is owned in our Rathbone Greenbank Multi-Asset Portfolios, talked at length about how AI was adopted early in its wealth management business, which is handily outgrowing peers in the US and has been a consistent driver of stock price performance. By incorporating AI into its sales funnel, it is more effective at attracting new clients so is bringing in more revenue. Meanwhile, AI tools are optimising account management for its existing clients, making experiences slicker for them and less costly for Morgan Stanley. Moody’s, the data provider and ratings agency, is already embedding and selling AI agents into its software solutions. We don’t own this one, yet it told us about significant efficiency improvements for customers.
Mastercard (a holding) sits on the intersection of the financial and technology sectors and has an enviable moat around itself. It’s not surprising that Mastercard’s investing in AI across multiple parts of the business. We were lucky enough to see a demonstration of some of the fraud prediction and cybersecurity products that are being radically enhanced with AI investment. Use your card to buy lunch in London, and five hours later a fraudster tries their luck with your details in New York AI will reject it, knowing you can’t have travelled so far in that time. Try 10 hours later (with other, blisteringly fast, checks) the payment will go through. When you see this first hand, it demonstrates the potential still ahead. All this investment is helping drive the top-line at Mastercard too. The products we got to see sit within something called Value-add Services and Solutions (VAS), which has been a key differentiator in winning new business. Mastercard is using AI to pull useful insights from the huge amount of transaction data it receives that it can sell back to merchants, banks and other customers.
Our holding Colgate-Palmolive, famous for its toothpaste, also spoke about revenue opportunities from AI. It’s developed a pricing tool using AI inputs, which is already deployed across the company. This allows it to adjust prices more quickly and maximise opportunities across different global markets. It’s already paying off helping balance profit margins with ensuring inventory moves off the shelves in the most efficient way.
As we jam, the rhythm gets stronger
It's still very early days for AI. Many debates about its best uses still lay ahead, but we came away with the impression that companies across multiple sectors are experimenting and adopting AI faster than some had assumed. It will be interesting to have the same conversations again in a year’s time.
If you haven’t seen it already, check out Multi-Asset Fund Manager Will McIntosh-Whyte’s take on the company helping make US drug makers lean machines here. Look out for more insights from Will and David’s research trip to the US in coming weeks.
