Electricity is one. The TCP/IP internet protocol is another. And I would argue that Artificial Intelligence also fits the definition of a “Foundational Technology”.
While significant in its own right,
providing the scaffolding on which a whole host of other innovations can be built.
With the current buzz surrounding AI, it is worth understanding the key characteristics of a foundational technology.
First, it is cheap and ubiquitous. While there are operational costs to running AI models, the underlying technology itself is not propriety and freely available for all to use, at operating cost. Artificial Intelligence is also being integrated into existing applications. Whether to enhance your low-light selfie or plugged-in as a research tool, it is seamlessly being integrated into our lives, not that different from how we use electricity and the internet.
Second, it takes decades for the really transformative applications to be developed. When most people think of the transformative application from electricity, they think of Edison’s light bulb (patented in 1879). But I would argue that the *real* killer app was developed almost 30 years later, in the form of the washing machine. If you’ve washed a full load of clothes by hand, you’ll understand what a killer app the washing machine is. While Chat GPT may seem really cool, like the novelty of a light bulb instead of a candle in the 1890s, the real, time-saving, efficiency-enhancing wash-o-matic that will come out of AI is still many years away.
Third, foundational technologies are, for the most part, not directly investable. Yes, investing in NVIDIA has been immensely profitable, but therein lies the problem. Despite the promising future of AI, the sole investable stock appears to be NVIDIA. Is it any surprise that the stock has reached such stratospheric levels when it is the only way to invest in today’s hottest thematic trend?
Instead, a nuanced, long-term perspective is needed.
This may include healthcare firms using AI for drug discovery, financial institutions leveraging it for risk assessment, and manufacturing companies implementing AI for process optimization.
Ultimately, successful AI investing will require a blend of foresight, research, and a willingness to adapt as this foundational technology continues to evolve and reshape industries in ways we may not yet fully anticipate.
