In the last 18 months, generative artificial intelligence, or GenAI, has inspired the world’s imagination for a brighter future, a future where we can get things done more easily and contribute to solving problems from healthcare to climate change, to education, to poverty and hunger. Some have equated the transformations that AI might bring to the industrial revolution or the introduction of electricity. Before we get carried away, what exactly is GenAI? In its simplest definition, GenAI is the ability of computer systems to process vast amounts of data, learn from it iteratively and present solutions in a very timely manner, sometimes better and faster than our own human intelligence.

Imagined, and Not Yet Imagined, GenAI Applications

GenAI makes self-driving cars possible, can detect fraud and write computer code and, for better or worse, can compose music and create art. In healthcare, AI is promising more accurate and timelier diagnoses, and expediting creation and development of new therapies. Skin cancer, for example, offers a compelling case for AI, where the sophisticated algorithms can classify dermoscopic images with remarkable accuracy. The applications are vast in almost every field. Current corporate applications across industries center around data analytics to deliver better results and improved efficiency. Eventually, one can imagine a workplace in which the human and computer would collaboratively execute tasks and find solutions. GenAI is a field that’s developing at an incredibly rapid pace, to the extent that we may not be able to currently imagine all the potential applications.

Leveraging the Boom: GenAI Investment Opportunities

From an investment perspective, we are researching investment opportunities across sectors that can leverage the anticipated growth in GenAI. On one hand, there are the enablers of the technology, from firms that design the chips that power the supercomputers, to others that manufacture the chips, and even the ones that build the machines that build the chips; an entire value chain of software and hardware firms ready to capture the opportunity. We are also evaluating the potential users of GenAI in different industries to identify which ones can make best use of the technology.

In addition to the large platform tech companies in our portfolios, which are developing hardware and cloud computing solutions that will soon become inseparable from AI, we’ve also invested in companies across the GenAI ecosystem. Most notable are those in the semiconductor space, such as Nvidia (NVDA), the leading producer of specialized GPU chips which power the data centers where large-scale AI models are trained, and ASML, a Netherlands-based leader in photolithography systems used in advanced semiconductor manufacturing. Another investment is Accenture (ACN), one of the largest IT services companies in the world, which is positioned to reap the benefits of assisting global companies in enhancing their processes and operations with AI.

Significant Challenges to GenAI

While the benefits of Gen AI are crystallizing, some serious headwinds exist. At the heart of the challenge with GenAI is that the technology lacks true consciousness and ethical judgment, limiting its ability to make complex moral decisions. The algorithms analyzing data are inherently subjective, leading to biases in the results. For example, in the field of healthcare, underrepresented data of one gender or minority group can skew predictive algorithms leading to prejudiced results. We have seen examples of nefarious creation of credible, fake content leading to the propagation of misinformation with dangerous repercussions.

GenAI will also likely be used to replace certain job functions that are currently performed by people to save money by companies. This may lead to huge job losses in both white and blue-collar jobs that society is not currently prepared for.

According to the International Energy Agency, one query via ChatGPT uses ten times the energy of a standard Google search. The enormous energy consumption of data centers that support GenAI also puts stress on the electrical grid, which could have significant downstream consequences, as well as risking water scarcity in certain communities. We are working with Ceres and the Valuing Water Initiative to engage Alphabet on water risk and community impacts of data center operations.

Reducing GenAI Bias and Risk

We must approach the design, training, and deployment of AI from a civil rights lens. Overall, we advocate for greater inclusion of unrepresented populations in the design and deployment of AI products across industries that minimize biases and reflect the diversity of people affected by AI. We’re also thinking about the potentially negative repercussions of combining AI with biometric technology (e.g. the use of facial recognition in law enforcement) and the use of AI facilitated surveillance in the workplace.

We are working with a coalition of investors called Collective Impact Coalition for Ethical Artificial Intelligence to question portfolio companies on their policies, governance, and implementation of AI strategies from an ethical perspective. If leading digital technology companies fail to adopt, implement, and disclose robust governance policies and controls backed by strong ethical principles, they face reputational harm while society faces significant risks.  

Bottom Line

Utopia or dystopia then? At Zevin Asset Management, we are taking a thoughtful approach to assessing the potential role of GenAI to drive corporate earnings, while remaining vigilant about the social and environmental risks posed by its development and use. The breakneck speed of development is resulting in a “develop first, ask questions later” mentality in the industry. To use a building metaphor, AI's foundations have been laid, and the framing and joists are going up fast, while governments are still trying to pass a building code. We think the right framework would be to create guardrails to prevent unwanted outcomes, with responsibility lying at all levels: governments, agencies, and enterprises. The European Union has already taken a step in the right direction with last year’s AI Act. A coordinated and massive effort will be necessary to put AI development on a socially responsible path, which will become more challenging as the sector consolidates and gains further lobbying strength and governments remain wary of stifling innovation.

Generative AI could prove to be a great opportunity, and a burden of immense responsibility, for society. At Zevin Asset Management, we believe we have a role to play in the future of GenAI by using our investor voice towards helping ensure the technology’s responsible development and implementation.

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