Written by: C.J. Lawrence | Advisor Asset Management
The market, as measured by the S&P 500 Index, is up over 17% year-to-date through August 11. The Tech-heavy Nasdaq is up over 31% and the Dow Jones Industrial Average (DJIA) has broken out at over 7% for the year. The bears point to a very narrow market, driven by seven mega-cap growth stocks which are up over 50% collectively while the rest of the market is up only low single digits. Their rally is a new technology product cycle which has been driven by the latest iteration of artificial intelligence (AI), building on the tremendous digital transformation witnessed during the pandemic, the broad-based move within the enterprise to cloud computing. We are, of course, talking about generative AI.
In simple terms, generative AI is a type of artificial intelligence system capable of generating text, images, or other media in response to prompts. These responses are far from human intelligence, but given the right data sets, responses generated by this technology can indeed be far more efficient (and cost effective) for many basic tasks when compared to those generated by humans. Think of how bad call centers — from the travel sector to your local healthcare provider — are at providing basic information. This technology is far from perfect given it is only as good as the data it scrapes (extracting of data from the web). We expect these applications should improve with time, but companies are already quite aggressively rolling out new applications.
Search is now being transformed into an interactive — dare we say “human-like” experience — which has already changed how kids do their homework, learn how to code, or even apply for college. One app garnered 100 million subscribers within a few days and is looking to build on its AI prowess to craft a better user experience versus its competitors. From new applications that generate images and text based on simple prompts to operating systems that can embed generative AI functionality into applications, AI-driven software is now even being used in an attempt to transform the highly inadequate user experience within the healthcare services sector. Why are these developments so exciting? These companies have quickly attained a new source of revenue from their existing client base.
These are exciting developments and the investment committee at C.J. Lawrence continues to favor investing in current and future market share leaders in this new technology. Beyond AI and Technology, CJL favors Healthcare; select pharmaceutical giants have continued to benefit from new breakthrough treatment for both Alzheimer’s and obesity, and medical-device companies are generally returning to growth after having suffered during the pandemic when most elective surgeries were pushed off to a later date. In short, we believe investors should continue to focus on investing in attractive growth companies/trends despite the many cross crosscurrents in the global economy.