The artificial intelligence boom has so far rewarded the companies building the hardware that underpins it, but experts believe the next phase of the technology's rollout will benefit the businesses putting it to use. Lisa Wang, head of EMEA investment strategy at Franklin Templeton Investment Services, said the AI story is evolving and that the next phase of the investment cycle is likely to be broader, creating opportunities across different sectors and markets.
According to a multi-asset outlook report from Franklin Templeton, while AI adoption continues apace, there are signs that the technology is starting to become commoditised. Customers of so-called ‘hyperscalers’ are reportedly less willing to pay for expensive marginal AI gains, which could play out to the benefit of companies using AI to improve their performance rather than those simply supplying the infrastructure.
Sanjiv Tumkur, head of equities at wealth manager Rathbones, said the sectors currently investing most heavily in generative AI as users – outside the technology sector itself – are healthcare, financial services, retail and consumer, manufacturing and professional services. In healthcare, AI is being used to improve productivity in pharmaceutical research and development, including designing new molecules, creating 3D protein structures and speeding up clinical trial protocols.
Financial services such as banking and insurance potentially stand to gain from automating middle- and back-office functions as well as customer service operations. However, Tumkur cautioned that these sectors are highly competitive and gains are typically eroded and replicated, making it difficult for most players to achieve a step-change in profitability. He cited JPMorgan Chase as an exception, noting that the US bank has an annual technology spend of around $18bn, of which approximately $2bn is thought to be on AI. JPMorgan has quantified its realised annual value from generative AI at $2bn through cost savings and revenue gains in areas such as real-time fraud detection, loan agreement processing and regulatory compliance.
Retail and consumer staples businesses have already adopted AI in logistics, online retailing, marketing, data analytics and supply chain optimisation. Walmart was highlighted as a prime example. Meanwhile, software, publishing and data analytics companies such as RELX – which offers a legal AI product called Lexis+ AI – are investing heavily, but Tumkur noted that these sectors are being punished by the market at present, with stock prices discounting more risks than benefits from generative AI due to concerns about external AI agents threatening their business models.
The FTSE 100 has seen mixed performance from technology-linked stocks as the market reassesses which companies will capture value from AI. For UK households, the shift could influence everything from mortgage rates to investment portfolios, as the sectors adopting AI may see productivity gains that feed into broader economic performance. Investors are advised to consult a qualified financial adviser before making any decisions based on these trends.