Artificial intelligence: A real game changer
After decades of expectation, machines that think, learn and create are poised to transform the economy, the markets and our lives
ARTIFICIAL INTELLIGENCE (AI) HAS RIDDEN WAVES of public excitement, skepticism and fear since the 1950s.1 The skeptics, it seems, may soon be silenced. When ChatGPT — a language-processing chatbot capable of synthesizing reams of information and generating human-like text in response to queries — became widely available to consumers for the first time in late 2022, it was immediately apparent that a tipping point had been reached.
Just ask ChatGPT. Here’s the response we got — within seconds — when we questioned whether all the hype around artificial intelligence is justified: AI “holds immense potential to drive innovation, improve decision-making processes and tackle complex problems across various fields, positively impacting society.” Clearly, modesty isn’t one of the bot’s “character” traits.
Human observers agree. “AI is going to transform the global economy as surely as electricity and the steam engine did in their own times,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. Below, Hyzy and Haim Israel, head of Thematic Investing for BofA Global Research, discuss the economic and market implications of the coming AI revolution.
Why is this finally AI’s breakthrough moment?
Put simply, it’s the perfect marriage of technology and need. “More data is created in a single hour today than in an entire year two decades ago. Yet only about 1% of data is being captured, used and stored,” says Israel. “Until now, AI could read and write, but not understand content. That’s rapidly changing,” he explains. The onset of generative AI (GAI) systems such as ChatGPT enables machines to understand human language and produce human-like dialogue and content.
GAI systems are capable of generating new text, images and other media — think research reports, news items, speeches, poems, songs, videos, computer programs, you name it — from existing data. This technological leap is creating an “iPhone moment” for AI, democratizing data by making it available to billions of people through a growing array of commercial uses, says Israel.
How will generative AI change the economy?
“As the technology improves, its primary benefits will include higher productivity, as companies increasingly turn to GAI for content creation, software development, marketing and sales and customer service,” Hyzy says. These capabilities will cut across industries and will benefit consumers as well as companies, he adds.
Global revenue associated with AI software, hardware, service and sales will likely grow at 19% per year, reaching $900 billion by 2026, compared with $318 billion in 2020.2 According to some estimates, AI will contribute more than $15 trillion to the global economy by 2030.3 “Funding for AI development is pouring in from corporate and individual investors, as well as governments,” Israel adds.
What geographic regions and economic sectors are likely to benefit the most?
“The U.S. and China, already the world’s two largest economies, are likely to experience the greatest economic gains from AI,” Israel says. Together, China and North America will account for about 70% of the global economic impact of AI by 2030. In fact, PwC estimates that AI will boost the GDP of China by a little over 26% by 2030, and of North America by 14.5%.4
Among sectors and industries, information technology is a clear winner, with software development, semiconductors, data centers, cybersecurity, search engines and more deriving benefits. “Beyond software, major infrastructure upgrades will be needed to support the massive flow of information,” Hyzy says. Industries ranging from education and healthcare to aerospace and the law will also be transformed, Israel adds. In pharmaceuticals, “AI can help screen new drug compounds to predict their success rates, or identify the right candidates for drug trials,” he says. In the law, “AI can write legal documents and summarize cases.”
Is AI likely to disrupt the labor market?
As with any major technological shift, the onset of AI is bound to shake up some professions and may eliminate some occupations. In the past, such shifts have mainly eliminated manual jobs, such as production-line manufacturing. What’s different this time is that AI is capable of handling many tasks associated with higher end professions. “But predictions of wholesale job losses are likely overblown,” Hyzy believes. “Advancements don’t just eliminate some jobs; they create whole new industries, businesses, skill sets and careers.”
What other potential risks does AI pose?
The widespread accessibility and use of ChatGPT and other GAI systems dramatically increase the risks of cyberattacks and fraud, Israel notes. As technology gets better at adopting human language and creating images, the risks of identity theft, for example, will only rise. The technology also presents new challenges in terms of privacy, as powerful AI systems have unprecedented ability to collect, use and potentially misuse, data about private individuals.
In response, the Federal Trade Commission recently launched an investigation into the security practices of the startup that produced ChatGPT.5 But effective barriers may be beyond the power of human security experts — in other words, AI may be needed to erect barriers against AI. Other challenges: maintaining intellectual property rights as AI reads and adapts existing text and images. And AI creators will also have to work hard to eliminate cultural biases from creeping into programs, Israel says.
How could investors benefit?
Already the promise of AI has helped to lift markets in 2023. But investors may need to invoke a quality not normally associated with rapid advancements: patience. “While the technology will surely accelerate, we are still very much in the pregame phase with GAI and other forms of AI,” Hyzy says. Diversification, a good idea for any investor, is especially important for those considering new technologies.
As for larger questions of AI’s potential threat to humanity, the technology itself offers a cautionary but hopeful perspective. Asked if humans should worry about AI taking over the world, ChatGPT responded, “No, but we should be vigilant and proactive in ensuring ethical development and responsible deployment of AI systems to mitigate potential risks.”
For more insights, read “Artificial intelligence … is intelligent” from BofA Global Research, “Generative artificial intelligence: Economic fad or standard?” from the Chief Investment Office, and “Me, myself and AI: What you need to know” from the Bank of America Institute.
1 Harvard University Graduate School of Arts and Sciences, “The History of Artificial Intelligence,” August 28, 2017.
2 BofA Global Research, IDC
5 The New York Times, “F.T.C. Opens Investigation into ChatGPT Maker Over Technology’s Potential Harms,” July 13, 2023.
BofA Global Research is research produced by BofA Securities, Inc. (“BofAS”) and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC, and wholly owned subsidiary of Bank of America Corporation.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).