By Andrew Bahlmann
Artificial intelligence (AI) was one of the dominant themes in the stock market in 2023, as some of the biggest tech companies in the world leveraged their AI capabilities to gain a competitive edge and deliver impressive results.
Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta, collectively known as the AI Seven, were responsible for most of the returns on the S&P 500 index last year. If the seven companies were excluded, equity performance for 2023 would look different. But will the momentum of the AI theme continue in 2024, or will it fade as other factors come into play?
The AI Seven are not a homogeneous group, but they share some common characteristics that enabled them to benefit from the AI theme in 2023. First, they have massive amounts of data, which is the fuel for AI. Second, they have the computing power and the talent to process and analyse the data, and to develop and deploy AI applications across various domains. Third, they have diversified revenue streams and loyal customer bases, which provide them with stability and resilience in the face of uncertainty and competition.
Some of the highlights of the AI Seven's performance in 2023:
– Apple launched the iPhone 14, which featured a new AI chip that enhanced the camera, the voice assistant, and the augmented reality capabilities of the device. The company also expanded its services segment, which leverages AI to provide personalised recommendations, content and ads to its users.
– Microsoft continued to dominate the cloud computing market with its Azure platform, which offers a range of AI solutions and tools for enterprises and developers. The company also saw strong growth in its gaming division, which uses AI to create immersive and realistic experiences for its Xbox and PC gamers.
– Alphabet reported record revenues and profits, driven by its core advertising business, which relies on AI to optimise the delivery and performance of its ads. The company also invested heavily in its AI research and innovation, launching new products and services such as Google Health, Google Quantum and Google Brain.
– Amazon maintained its leadership position in the e-commerce and online retail space, using AI to enhance its logistics, delivery and customer service operations. The company also grew its cloud computing and digital entertainment segments, which uses AI to provide tailored and engaging offerings to its customers.
– Nvidia soared to new heights, as its graphics processing units and AI chips were in high demand for various applications, such as gaming, data centres, autonomous vehicles and edge computing. The company also acquired Arm, a leading chip designer, which gave it access to a wider market and a deeper talent pool.
– Tesla achieved its goal of producing and delivering one million vehicles in 2023, thanks to its AI-powered manufacturing and supply chain systems. The company also made significant progress in its autonomous driving technology, which used AI to collect and analyse data from its fleet of vehicles and improve its safety and performance.
– Meta, formerly known as Facebook, rebranded itself as a metaverse company, which aimed to create a virtual world where people can interact, work, play and socialise. The company used AI to power its metaverse platform, which included its social media, messaging, gaming and virtual reality products and services.
Outlook for 2024
The AI theme is not likely to lose any steam in 2024, as the AI Seven and other companies continue to invest and innovate in this field. According to a report by IDC, the global spending on AI is expected to reach $110 billion (R2 trillion) in 2024, up from $50bn in 2020, representing a compound annual growth rate of 21.7%. The report also predicts that AI will have a transformative impact on various industries, such as health care, education, manufacturing, retail and finance, creating new opportunities and challenges for businesses and consumers.
However, the AI theme is not without risks and uncertainties, which could pose some headwinds for the AI Seven and the stock market in 2024. Some of the risks and uncertainties:
– Regulation and ethics: As AI becomes more pervasive and powerful, it also raises ethical and social issues, such as privacy, security, bias, accountability and human dignity. The AI Seven and other companies may face increased scrutiny and regulation from governments and society, which could limit their growth and innovation potential.
– Competition and disruption: As AI lowers the barriers to entry and creates new possibilities, the AI Seven and other companies may face more competition and disruption from new entrants and incumbents, both within and across industries. The AI Seven and other companies may have to adapt and innovate faster to maintain their market share and profitability.
– Valuation and expectation: As AI drives the performance and valuation of the AI Seven and other companies, it also raises the expectation and pressure from investors and stakeholders. The AI Seven and other companies may have to deliver consistent and exceptional results to justify their high valuation and avoid disappointment and correction.
Notwithstanding the challenges which could affect stock market ratings in 2024, the AI theme will probably continue in 2024, as the AI Seven and other companies continue to invest and innovate in the field, creating new value and opportunities for businesses and consumers.
Andrew Bahlmann is the chief executive of corporate and advisory, Deal Leaders International. You can follow him on: @DealLeaders @Corpreneur
BIOGRAPHY
Bahlmann is a qualified chartered accountant and among his experience is a year he spent in New York managing a large South African insurer’s operations in Bermuda.
Upon his return from the US, he was appointed as the chief financial officer at WesBank Corporate Division. Having completed numerous successful acquisitions and disposals of businesses and working alongside some of the largest international motor manufacturers such as Toyota, VW and General Motors, Bahlmann’s exposure to the global mergers and acquisitions market has proven invaluable.
Following WesBank, he built his own consultancy, IntelStrat, to focus on fostering “entrepreneurial DNA” in the corporate and SME spheres (coining the term corpreneur). His most significant insight during this time was understanding the areas that business owners need to focus on to maximise the value of their business.
As a shareholder and the chief Executive of the Corporate and Advisory division at Deal Leaders International, Bahlmann is constantly exposed to diverse businesses across multiple industries and countries.
Being part of extensive international networks built over the past few years, Bahlmann found that his experience on both sides of the table has allowed him to authentically connect with client and acquirer.
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