Michelle Thompson“AI” is the current buzzword that’s creating a lot of excitement. The emerging industry has been a source of optimism for investors and has caused significant market enthusiasm throughout the year 2023.
According to data from FactSet, during the third quarter, 152 of the S&P 500 companies mentioned the term “AI” in their earnings calls. This represents the second-highest number of S&P 500 companies referring to “AI” in earnings calls in the last decade, as tracked by FactSet. It falls just behind the previous quarter’s 180 mentions.
Additionally, Nvidia, a chipmaker closely associated with AI, has been the top-performing US stock this year, with a remarkable increase of 235% in its value so far.
But will the excitement surrounding AI persist into 2024?
Before the Bell recently had a conversation with Marco Argenti, the Chief Information Officer at Goldman Sachs, to discuss the future of AI.
Argenti has a track record of foreseeing forthcoming technology trends. Prior to his role at Goldman Sachs, he served as the Vice President of Technology at Amazon Web Services, where he initiated and managed various AWS ventures, including mobile, serverless computing, Internet of Things, and augmented and virtual reality.
The following interview has been condensed for brevity and clarity.
What are some of the overarching trends you’re observing in AI for the upcoming year?
My initial prediction is what I refer to as “the rise of hybrid AI.” I believe we will see a shift toward finding a balance between larger foundational models like ChatGPT and Gemini, and the utilization of smaller, specialized AI models. These two components will collaborate closely. At Goldman Sachs, we’ve found that by combining these approaches, you can effectively leverage their unique strengths.
Larger foundational models possess exceptional reasoning capabilities. They can orchestrate data retrieval and navigate various tasks. In contrast, smaller models excel in operating within more restricted infrastructure environments, which can be fine-tuned to prioritize data privacy. The larger model will handle user inputs, break them down into tasks, interact with specialized models either on-site or on a virtual private cloud, and then employ summarization capabilities to generate answers. I refer to this synergy as “hybrid AI.”
Which companies or industries are poised to benefit from this transition toward more specialized AI models?
In the realm of financial services, we encounter highly specialized and intricate use cases, such as interpreting the legal language embedded in derivative contracts. Understanding the nuances of legal finance is crucial in such scenarios. By fine-tuning an AI model to decipher these derivative contracts and convert them into a machine-readable format, we can facilitate their integration into a generic AI model. This refinement holds significant potential.
Specialized AI models can be developed for specific tasks, such as optimizing portfolios or extracting key information from earnings calls and corporate filings. For instance, if a client poses a complex query like, “Can you provide information on companies in a particular sector that have reported more than 10% growth due to a specific trend?” a larger AI model can interpret the question, break it down into instructions, and delegate the task to specialized models. These models collaborate to gather and summarize the information, resembling a team of managers and specialists working closely together. This trend is expected to gain prominence in the corporate world.
While many large corporations and financial institutions have previously restricted the use of AI, this specialization could potentially change the perception. This leads to my second prediction, which involves shifting from the potential of AI to its practical implementation in a secure manner. In 2024, we can anticipate that proof of concepts will come to life, yielding tangible returns on investment and enhancing various aspects of organizations, including developer productivity, customer support, and operational efficiency. There will also be a heightened focus on safety and governance, which may have been less emphasized during technology testing phases.
Regulating AI has been a topic of discussion, and the uncertainty surrounding its potential has led to concerns and fear. In the coming years, there will likely be a balanced approach to regulation, prioritizing security while enabling innovation. Excessive restrictions that put countries at a disadvantage will be avoided.
The 2024 elections are expected to feature AI prominently in the agenda, as AI’s impact on people’s lives becomes increasingly apparent. Issues related to intellectual property protection and content creation will be key points of discussion.
Over time, as people become more familiar with AI tools like ChatGPT in both consumer and enterprise contexts, some of the initial fears associated with AI may diminish. However, it’s important to recognize that we are still in the early stages of understanding the disruptive potential of this technology.
In terms of investment, there may be a shift in venture capital fund allocation related to AI. Initially, many investments were directed toward creating foundational AI models, which require significant capital. However, there is likely to be a transition toward investing in business-to-business and vertical applications built upon these foundational models. This shift could open up new opportunities and markets in the AI industry.
In terms of mergers and acquisitions (M&A) and initial public offerings (IPOs), the AI industry has seen the emergence of numerous startups and projects, indicating a healthy top of the funnel. While some startups may fail, others may be acquired or go public, potentially revitalizing the M&A and IPO landscape.
Uber’s inclusion in the S&P 500 index signifies a notable development.
Uber’s shares recently reached a new high for the year as the San Francisco-based ride-hailing company gets ready to make its debut on the S&P 500 index.
Uber’s CEO, Dara Khosrowshahi, expressed pride in the Uber team for their inclusion in the S&P 500, signaling the company’s positive trajectory.
This addition was somewhat expected, given that Uber’s market value stands at around $127 billion, making it the largest U.S. company not yet included in the S&P 500.
Uber has seen a successful year under Khosrowshahi’s leadership, marked by regulatory victories in the U.S. and UK, robust quarterly earnings, record ridership numbers, and an impressive stock performance, with a gain of over 150% in 2023.
Not too long ago, Uber faced significant challenges, including leadership issues, opposition from cities and taxi unions, profitability concerns, and a 52% drop in its stock value in 2022.
Uber’s inclusion in the S&P 500, which rebalances quarterly, is a noteworthy accomplishment, requiring a company to meet specific criteria. This move underscores Uber’s expanding influence and market stability, solidifying its position as a major player.
However, the effects of Uber’s inclusion go beyond Wall Street, as many people’s retirement accounts and investment portfolios are linked to S&P 500 tracking funds. When Uber joins the index, these funds automatically purchase its stock, potentially driving up its price.
Since the announcement of Uber’s addition to the S&P 500 in early December, the company’s stock has already risen by approximately 10%. It now sits just below its previous all-time high, which was reached nearly two years ago in February 2021.
Greyhound bus stops represent valuable assets, and various parties are capitalizing on them.
Intercity bus lines such as Greyhound, Trailways, and Megabus, which play an often overlooked yet vital role in America’s transportation system, transport twice as many passengers annually as Amtrak. However, this entire network is currently facing a growing crisis: Greyhound and other private bus companies are rapidly closing their terminals across the country, as reported by my colleague Nathaniel Meyersohn.
In recent years, cities like Houston, Philadelphia, Cincinnati, Tampa, Louisville, Charlottesville, Portland, and others have seen their downtown bus depots shuttered. Major hubs like Chicago and Dallas are also on track to close their bus terminals. Greyhound and other bus operators have been relocating their stops to areas far from city centers, often lacking adequate public transit access, switching to curbside service, or even discontinuing certain routes altogether.
The acceleration of terminal closures can be attributed to Greyhound, the largest carrier, selling its valuable terminals to investors, including the hedge fund Alden Global Capital.
Last year, an Alden subsidiary called Twenty Lake Holdings acquired 33 Greyhound stations for $140 million. Alden is widely recognized for acquiring local newspapers like The Chicago Tribune, New York Daily News, and The Baltimore Sun, subsequently reducing staff and selling some of the iconic downtown buildings.
Alden has now begun selling the Greyhound depots to real estate developers, expediting the timeline for terminal closures.
