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Terry Smith and Alex Darwall pick winner amid AI hype

Artificial intelligence may be in the middle of a 'hype cycle' but companies like Amadeus, a top holding for Terry Smith and Alexander Darwall, are reaping the benefits.

 
Terry Smith and Alex Darwall pick winner amid AI hype
 

Artificial intelligence (AI) is enjoying investment hype but when it comes to applying this next-stage technology, not all companies are created equal.

Legal & General Investment Management (LGIM) co-head of active equities Nick Hartley said the number of companies outside of the large-cap technology sector talking about AI applications has ‘increased dramatically’ in the last 12 months.

He said that AI is currently in a ‘hype cycle’ as investor enthusiasm ramps up and there were two ways to make money. ‘You can make a lot of money early riding the hype, or when you get past the peak and are buying at a trough of disillusionment’, he said.

The potential for AI is immense and there are many layers to it, including big data, machine learning, and the newest and most complex form, ‘deep learning’.

‘A deep learning machine will teach itself and allows you to go beyond what we [as humans] are able to do - it has the ability to get beyond parity [with the human brain],’ said Hartley.

In order for AI to be a success, however, Hartley said three things were needed: technical capability, data, but ‘more importantly you need to be able to deploy [the technology] at scale’.

‘A lot of businesses will fail on the third point,’ he said.

One company that is getting it right is Spanish airline technology company Amadeus (AMA.MC), which takes all schedules and fares for airlines and displays it to travel agents and online travel stores.

It processes 595 million bookings a year, and for every booking made there have been 1,000 ‘lookings’ meaning the scale of the data processed is huge.

‘There is an opportunity to deploy at scale,’ said Hartley. ‘By deploying AI it gives [Amadeus] a competitive advantage.’

Shares in Amadeus have rallied 165% over the last five years. The stock is a top holding for Citywire AAA-rated Terry Smith in his £13.4 billion Fundsmith Equity fund and  AA-rated Alexander Darwall, in his £4.9 billion Jupiter European fund and £850 million Jupiter European Opportunities (JEO ) investment trust.

 

The scale barrier can also be seen in the adoption of driverless cars. Although the AI technical capability has been established, and there is sufficient data, gaining scale in the business is difficult.

‘The barrier [with driverless cars] is regulation and there is a tricky stand-off,’ said Hartley. ‘The more people do it, the better the data and the better the outcome, but people are not going to do it until you have good outcomes.’

The roll-out has been more successful in the oil and gas sector, where AI sensors are being used through the process chain to flag early warning signs for plant failures.

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