Artificial Intelligence: From Talos to DeepMind
The concept of artificial intelligence is as old as civilisation. Today, however, myth and legend are becoming reality with the rise of artificial intelligence (AI) systems which are changing the world. AI is a core investment theme for the Dominion Global Trends Funds.
There’s nothing new in the idea of AI, what’s new is the technology to make it a reality

As functions currently requiring human intelligence are augmented or replaced by AI, economic wealth is created. The AI software market alone is forecast to be worth close to $120bn by 2025. AI has the potential to create trillions of dollars of new wealth for the global economy as the technology matures, becoming a significant driver of economic growth. In the future, AI will become an increasingly critical tool for businesses and consumers, working alongside decision makers across all industries to facilitate more efficient interactions in the economy. AI is a core investment trend for the Dominion Global Trends Funds and offers investors long-term exposure to this world changing technological development.
Beware… the Mechanical Turk!
The Schöbrunn Palace in Vienna, in the year 1770, is not the first place we would expect to see a functioning artificial intelligence. Putting our historical prejudices aside, this is what the attendees to a demonstration of a novel new machine witnessed. Wolfgang von Kemplen arrived at the Palace to demonstrate a machine that could play chess against a human opponent… and win. The machine consisted of a model of a human dressed in traditional Ottoman robes with a mechanical hand on-top of a cabinet. A chess board sat in front of the model ‘Turk’. Inside the cabinet was a complicated mechanism of gears and cogs which appeared to drive the model. The cabinet had clear glass doors so observers could see inside. During this first demonstration, observers were allowed to inspect the machine before being asked to nominate one person to challenge the machine to a game of chess. In this first demonstration, Count Ludwig von Cobenzl was first to play. He was quickly defeated by the machine, which also had the ability to correct mistakes by its opponent and communicate with observers using a letter board. Observers at the time were so amazed at the artificial intelligence displayed by the machine that it became a sensation in 18th century Europe, even playing and defeating Napolean Bonaparte and Benjamin Franklin.
The truth of how this AI worked was simple: it was not AI. As the image below shows, the secret of the machine was that it was operated by a human inside the cabinet. The cabinet was designed to make observers think there was only a complex mechanism in the cabinet, creating the illusion of an artificial intelligence. The machine’s inventor benefitted financially from creating a fake artificial intelligence.

The lesson of the Mechanical Turk has not been forgotten. A recent study looked at more than 2,000 tech start-ups in Europe who classify themselves as ‘AI’ businesses. Of those companies, 40% did not actually have any AI in their products. Of the remaining 60%, the majority were simply using statistics and data analysis, relatively basic tools available to anyone with a mathematics degree and most certainly not real AI. Only a small fraction, likely less than 10%, of the companies in the study that claim to be AI businesses are real AI companies. Those companies that are creating real and sustainable competitive AI systems, which will change users’ experience in a meaningful way, represent a small minority of companies claiming AI status. These are the companies in which investors will want to be invested. Investors do not want to be invested in the Mechanical Turk: an AI investment product or stock that has no real underlying AI technology and is simply posing as an AI company.
Finding the real AI opportunities requires in-depth research and expertise in technology investing. At Dominion, we have focused intently on looking for these real AI businesses, with meaningful technology leadership and the ability to leverage their business models to take advantage of AI. Our Global Trends investment philosophy has driven our thinking on our AI investment exposure and has led us to only investing in those AI businesses that match our criteria of competitive advantage through data, technological advantage, and strong long-term growth outlook. This means investors in our funds have exposure to this trend in an optimal way and are not exposed to the potential downside of a decline in AI company valuations that an ETF may be exposed to.
So… What is AI?
Artificial intelligence (AI) is the development of computer systems to perform tasks that would traditionally require human intelligence to be performed. Today AI is already being used in a broad range of tasks including speech recognition, visual perception, decision making, data matching and data analysis. It is a core technology in the development of self-driving cars, advanced-automated manufacturing, internet search, targeted advertisement, content censoring and entertainment. As AI technology improves, it will be used in an increasing number of tasks and will eventually be as ubiquitous for business and consumers as the personal computer is today.
Most AI applications today are specialised, with an AI system required to perform specific functions and improve at those functions over time. In healthcare, for example, AI is now being used to read scans of patients’ bodies to detect cancer. These AI systems can already achieve a higher accuracy of correct diagnosis of scan images than doctors and can do it at a much faster speed. What is more, the accuracy of these diagnoses improves over time.
The more the AI system practices, the better it gets at its function. This is a core attribute of AI technology, the characteristic of machine self-learning. This is when the AI algorithm improves itself over time and the rate of improvement increases as the amount of data processed increases. This is the machine equivalent of trial and error.
The massive increase in data and soaring computational power at decreasing costs has made AI a commercial reality, and in many cases a necessity. More data makes AI systems better at doing their job. This makes data very valuable. Those companies that have the largest amount of data for a given AI task therefore have a major advantage in creating the best AI in that field. Today, the global AI software market is estimated to be worth $9.5 billion and is growing annually at +43%. This market is predicted to be worth $119 billion in just 6 years-time.

Research by the consultancy Accenture indicates that if AI continues to mature and is rolled out across industries in developed world economies, the effect could be to increase long-term economic growth rates substantially. The results of the analysis are shown below. AI could increase the long-term annual growth-rate of GDP in the US from +2.6% to +4.6%, for the UK this increase is from +2.5% to +3.9%, for Germany from +1.4% to +3%.

This difference in growth rates represents trillions of dollars’ worth of new economic wealth. In developed and developing countries AI is likely to boost GDP growth and could increase the average business profit margin in some sectors by as much as +40%. The research analysis summarized in the chart above translates into $14 trillion of additional economic activity by 2035. Even in the short- and medium-term, AI offers investors a once in a lifetime opportunity to invest in a world changing technology.
AI exposure in the Dominion Global Trends Funds
Dominion is dedicated to investing in Global Trends, the structural changes underway in the world that will shape the future global economy. AI is already an important trend for Dominion’s investment funds and will continue to be a core investment trend for the foreseeable future. Dominion’s investment process in AI (Dominion AI investments in bold below) has been to find companies that have a data advantage combined with leading AI expertise. This enables those businesses to create systems which are better than their competitors and will continue to get better over time. This creates competitive moats allowing for these successful companies to dominate an industry and generate significant profit margins.
A massive data advantage over their competitors has allowed Alphabet (Google) and Facebook to dominate the internet search, short form video and social network markets in the Western world. They can match users to the best search result or social interaction, often a result which is more engaging than a given user would have chosen themselves, making the platforms better over time and causing users to spend more time within their ecosystem. These companies can monetise this by showing users advertisements. These advertisements are matched to specific consumers, on an individual level, by AI algorithms which have an unparalleled knowledge of the individual consumer. This is AI in action. Such accurate ad matching is highly valuable to advertisers and has allowed Alphabet and Facebook to take c.70% of all online marketing spend in the US, with only Amazon looking able to significantly challenge the duopoly. AI stretches far beyond just advertising. It is critical for content curation on YouTube and Spotify and matching potential couples on Tinder and Match.com’s dating platforms. AI is fundamental to building computer games (the world’s largest entertainment sector), for automated driving and cloud computing. AI is not just a Western phenomenon either. China’s internet giants are making great strides in deploying AI, with companies like Baidu and Alibaba amongst the leading players globally. Automated driving remains in the development stage but it will transform the world. This is a technology driven entirely by AI. Aptiv is a global leader in developing and producing the automated braking and driver assist systems that automate driver functions in modern vehicles and the company is at the forefront of developing higher levels of automated systems which utilise AI. Cognex is a company whose products connect to AI systems in the industrial and logistics sectors. The company’s sensor products are critical to automating industrial applications and robotics, and these systems are increasingly being driven by more sophisticated AI technology.
As AI technology continues to develop, Dominion will continue to look at future opportunities to invest in this exciting space. This is an important attribute of Dominion’s actively managed funds, the ability to adapt over time and ensure investor exposure remains optimized to the best long-term AI investment names.
Disclaimer
This financial promotion is issued by Dominion Asset Management Limited which is authorised and regulated by the Financial Conduct Authority under Firm Reference Number: 582924. This promotion relates to Dominion Global Trends funds and is intended for Professional Clients and Professional Advisers only and should not be relied upon by any other persons.
The material is for information purposes only and does not constitute investment advice. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.
Any investment and economic outlook information contained has been compiled by Dominion Asset Management Limited from various sources. Information obtained from third parties is believed to be reliable and Dominion Asset Management Limited assume no responsibility for any errors or omissions.
Past performance is not a reliable indicator for future results. The value of investments, and any income from them, can fall as well as rise and you may not get back the amount invested.
