To Our Investors and Friends,
The S&P 500 Index expanded by about 1.5% in April as a handful of mega cap companies drove returns higher. Oil was up about 1.5% in April, ending at $77 a barrel. The 10-year Treasury bond remained steady, ending at 3.4%, as did the 2-Year Treasury, ending at 60 basis points above the 10-year. Continued concerns surrounding the economy favored large companies over small in April. This led the Russell 1000 Value Index to appreciate 1.5%, the Russell 1000 Growth Index to increase 1.0% and small cap indexes to finish lower; the Russell 2000 Growth Index declined 1.2% and the Russell 2000 Value Index was down about 2.5% for the month.
The resurgence of mega cap technology companies this year is largely driven by excitement surrounding Artificial intelligence (AI), which reentered investors’ radar earlier this year when Microsoft (MSFT) made a $10 billion investment in OpenAI, the creator of ChatGPT. Almost immediately, shares of the companies that have considerable artificial intelligence businesses or capabilities soared, most notably AI chip maker Nvidia (NVDA).
Many technology companies have been building their artificial intelligence capability for decades, but it is only recent advancements in cloud-based data collection and enhanced computing capability through powerful semiconductors that have evolved these efforts.
So, why are corporations and governments eager to invest in artificial intelligence capabilities? “The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the internet, and the mobile phone. Entire industries will reorient around it. Businesses will distinguish themselves by how they use it,” stated Microsoft founder Bill Gates last month.
According to preeminent expert Stuart Russell, an AI professor at the University of California, Berkeley, AI may have a net present value of $13.5 quadrillion ($13,500 trillion). Considering global GDP is currently just under $100 trillion, this is quite meaningful! Why is this? Super-intelligent AI will allow us to use the technology we have now but more efficiently and invent what we may need. As Russell explains, the invention of a superior intelligence “will be the last invention man need ever make, provided the machine is docile enough to tell us how to keep it under control.” Super-intelligent AI will take over from here.
This is both incredible and frightening all at once, for obvious reasons. In his book Human Compatible, Artificial Intelligence and the Problem of Control, Russell compares super-intelligent AI to an advanced alien race that is far more intelligent than humans and is set to arrive on Earth in 30 to 50 years. We would be preparing for the arrival of an advanced civilization that is vastly different and with much greater trepidation than we are for the arrival of super-intelligent AI. “Our response to super intelligent AI has been underwhelming,” explains Russell.
There is no need to lose sleep just yet, as we still have a lot to develop to create competent machines. Right now, the focus has been on faster speeds. Russell notes, “Faster machines just give you the wrong answer more quickly.” What we need to do is give machines the ability to understand language and develop common sense, both of which are absent today. Russell explains that through language, “humanity has acquired layer upon layer of information that all work together.” In fact, “knowledge is a building material that can be accumulated and improve predictive calculations,” which eventually creates intelligence.
It will be up to us to make sure that the Super Intelligence we create doesn’t quickly become our master, a fate we handed down to the apes millions of years ago. “I fear that AI may replace humans altogether. If people design computer viruses, someone will design AI that improves and replicates itself. This will be a new form of life that outperforms humans,” stated renowned astrophysicist Stephen Hawking in 2016.
I believe that our greatest concern should be “a failure of value alignment…imbue machines with objectives that are imperfectly aligned with our own.” Russell explains that super-intelligent machines must be programmed knowing “that the human will switch it off only if it is doing something wrong, that is, doing something contrary to human preferences.” The good news is that leading developers of AI are all aware of both the potential and the systemic risks of losing control of our creation and are developing AI with that in mind.
At Kingsland Investments, we seek businesses that use new technologies such as AI to create better solutions than are currently available in the marketplace. These new solutions are often faster, less expensive and simplify operations for customers, leading to significant demand. Although not immune from economic slowdowns, we believe adoption of such technologies should remain solid throughout the economic cycle, accelerating faster than the economy coming out of weaker economic times such as what we are experiencing this year.
All the best to you,
Arthur K. Weise, CFA
The views expressed are those of Kingsland Investments as of May 1, 2023, and are not intended as investment advice or recommendation. For informational purposes only. Investments are subject to market risk, including the loss of principal. Past performance does not guarantee future results. The stocks mentioned are for illustrative purposes only and are not a recommendation to buy or sell. There can be no assurances that any of the trends described herein will continue or will not reverse. Past events and trends do not imply, predict or guarantee, and are not necessarily indicative of future events or results. Investors cannot invest directly in an index.