Luxembourg; September 29, 2023

Introduction

Unless you’ve been meditating under an ancient oak tree for the past year, you’ve likely heard the buzz around Generative AI (GenAI). It’s not just another tech fad; it’s a groundbreaking innovation that’s reshaping our world. In this piece, we’ll explore the power, potential, and promise of Gen AI, and why it’s crucial to understand its impact on your life and the world at large for the next decade. So, buckle up! 🚀

Why Should You Care?

The implications of Gen AI are far-reaching, affecting everything from how we work to how we interact with technology. It’s not just about automating tasks; it’s about augmenting human capabilities to levels we’ve never seen before. If you’re not paying attention, you might just miss the next big wave of innovation, one that will redefine what it means to be human.

What Exactly Are We Talking About?

Gen AI is more than just a fancy term; it’s a tool in the form of a new computing platform that’s as revolutionary as the wheel—well, almost. If the jargon intimidates you, don’t fret. Just ask ChatGPT to break it down for you. The real game-changer here is that Gen AI can process text, sound and images to create original content such as images, sounds, or text in real-time. That’s right, it’s absolutely groundbreaking since it’s the first time in human history that a machine can do this!

Image generated by Dall-E based on our prompt

The Historical Context

To truly appreciate the significance of Gen AI, it’s essential to understand its place in the broader context of technological evolution. From the steam engine, electricity and cars to the internet and smartphones, each major technological leap has fundamentally altered society from augmenting our muscles, our memory to eventually augmenting our intelligence. GenAI promises to be such a leap, and a powerful one at that.

A New Era of Human-Machine Symbiosis and Universally Accessible Intelligence

At first glance, Generative AI might seem like just another step in the evolution of smart technology. But it’s so much more. Imagine a world where voice interfaces are as natural as talking to a friend. This isn’t just about asking your device to play your favorite song; it’s about having an intelligent agent that’s with you 24/7. This agent doesn’t just hear your commands; it understands your needs, sees what you see, and offers real-time advice. Picture having a personal life coach, a sports mentor, and a leadership advisor available at your beck and call—all for the cost of a couple of coffees a month. The progress you could make in your personal and professional life would be unprecedented. And this is not a pipe dream, this technology exists today and will be available to you in the next months.

Image generated by Dall-E based on our prompt

Beyond Knowledge: Solving Humanity’s Grand Challenges

But let’s think bigger. Generative AI isn’t just a tool for individual empowerment; it’s a platform with the potential to address some of humanity’s most pressing challenges. We’re not just talking about incremental improvements here; we’re talking about transformative solutions that could take centuries to achieve with traditional computing. Whether it’s finding groundbreaking cures for diseases, creating innovative strategies to combat climate change, or ensuring a high quality of life for everyone on the planet, Generative AI is poised to make a monumental impact. And this isn’t just wishful thinking; it’s a vision grounded in the promising technologies we’re seeing in our investment pipeline.

The Ethical Considerations

However, with great power comes great responsibility. As we integrate GenAI into our lives, ethical considerations around data privacy, security, and societal impact cannot be ignored. It’s a double-edged sword that we must wield carefully. While these are crucial, sustainability must not be ignored. As Gen AI scales, its energy consumption and environmental impact will be non-trivial. Balancing performance with sustainability will be a key challenge moving forward.

Image generated by Dall-E based on our prompt

The Three Pillars of GenAI

To understand GenAI’s transformative power, consider these three core attributes:

1. Amplification: Enhancing human capabilities.

2. Acceleration: Speeding up processes and tasks.

3. Democratization: Making advanced tools accessible to all.

Each attribute alone is revolutionary. Combine them, and you’ve got something that’s nothing short of groundbreaking. Whether we’re ready for this seismic shift is another question altogether.

The Practical Impact of GenAI

Say Goodbye to Keyboards!

Gen AI is revolutionizing the way we interact with machines. Gone are the days of clunky keyboards and complex code which very few people could master. With Gen AI, natural language interactions will become the norm, opening up new avenues for highly accessible (in terms of usage) products, services, and of course robotics!

Image generated by Dall-E based on our prompt

An Unprecedented Surge in Productivity

When you integrate Gen AI into your daily workflow as we have started to do, the productivity gains are staggering. Tasks that once took hours are now completed in mere minutes—a 100 to 1000x improvement. This isn’t just a game-changer for individuals; it’s revolutionary for entire organizations. Consider the companies already invested in cloud technologies, with a whopping $600 billion spent on public clouds in 2023 alone. These firms are sitting on mountains of data, and Gen AI offers them the tools to unlock advanced analytics and machine learning at an unprecedented scale.

The impact is hard to generalize; some companies will see more benefits than others. But let’s do some quick math. If we extrapolate a 100x efficiency gain across a 1,000-person organization, we’re talking about saving a million hours annually—hours that can be redirected to uniquely value-adding human tasks. Goldman Sachs ventured to say that Gen AI could boost global GDP by 7%. While the exact figure is up for debate, the direction is clear: Gen AI is set to redefine productivity on a global scale.

The Return of Deflation: Gen AI’s Radical Cost-Cutting Impact

Just as digitization and mobile tech have made a plethora of services affordable or even free, Gen AI is revolutionizing cost structures across industries. Take a simple legal query, for instance. Traditionally, you’d send an email or schedule a video consultation, engage in back-and-forths to provide context, and easily rack up a €300 bill at rates of €100-300 per hour. With Gen AI, you get your answer in seconds for roughly 1 cent—a staggering 3000x cost reduction. Who needs to wait for a doctor for a diagnosis when you can get it done instantly for 1c?  This isn’t just about individual savings; it’s a collapse in the cost of production for a wide range of services. When you pair this ultra-low cost with instant accessibility, it’s easy to see why demand is skyrocketing, making this one of the fastest-growing tools ever.

The Capabilities and Applications of GenAI

Gen AI is a reasoning engine operating on the basis of a vast knowledge database. In other words, they know a lot about pretty much any subject ever described across human history (as long as it’s in their database) and they can apply reasoning to that knowledge. It’s continually evolving, and while it may have its quirks, dismissing its potential would be short-sighted. Already today, on average, models’ creative capabilities go beyond human capabilities, with clear emerging superhuman capabilities. And Generative AI finds applications in various domains: from simulating historical conversations to co-authoring books, Gen AI’s creative capabilities are limitless. For the curious, here’s a laundry list of those, click here or there.

Biggest platform shift ever?

We believe and are ready to bet that its influence will be felt across every sector, leading to the creation of trillions in value while simultaneously causing the destruction of billions over the next decade. Generative AI isn’t just a tech trend; it’s a launchpad for a myriad of groundbreaking businesses. As of now, nearly 100,000 companies are capitalizing on this wave. While we’re in the early, exuberant phase, the impact will be monumental. And like any disruptive force, it’ll reshape the job market, making some roles obsolete while creating new ones.

Where the Gold lies

So, you might ask, how can we make money by investing in this trend? The market for Gen AI can be segmented into three layers:

1. Infrastructure: Dominated by giants like NVIDIA, Amazon, and Google, this layer is all about scale and capital-intensive operations. Startups, tread carefully—unless you’re like our portfolio gem, Pliops, which uniquely accelerates storage in this space.

2. Platforms: Think of managed enterprise services and developer tools. Companies like Adyen and Snowflake rode the cloud wave to success, and we expect a similar trajectory here. Enterprises are craving customized, secure solutions that align with their unique needs and constraints.

3. Applications: This is where the magic happens. Dedicated agents leveraging the GenAI model like ChatGPT: some will be generic (augmenting human abilities at a rate we can not comprehend, like hiring a massive new labour force into your life and company at almost zero cost), some business process specific (responding to customers), some dedicated to education (moving beyond read, compute and write), health (identify issues early, support your lifestyle changes, nudge in right direction), etc.

To which of the above stacks will the value creation accrue? The evolution of the cloud market would suggest we look at both infrastructure and application companies who each generated around $2 trillion in market value over the last decade and a half. A similar trend would set the stage for a colossal opportunity for startups using Generative AI to redefine business operations and consumer experiences and for investors to make wealth-changing investments.

The Double-Edged Sword of Generative AI: A Revolution with Winners, Losers, and Unforeseen Risks

Winners: The Power of Data and Questions

In the burgeoning landscape of generative AI, the spoils will go to those who wield the most potent weapons: data and questions. Companies with rich, vertical data sets will have a distinct advantage, as will those who can master the art of formulating incisive prompts. This is perhaps one of the most underappreciated aspects of the AI revolution. The system is only as good as the questions it’s asked. A poorly framed question yields a lackluster answer, while a sophisticated query can unlock profound insights. The command of language, knowledge and culture will become the great divider, amplifying the gap between the haves and the have-nots to a stupefying extent.

Future Moats: Beyond Better Models

As the technology matures, companies will look to build sustainable competitive advantages. While better models are an obvious route, the real moat may lie in a massive usage flywheel and the ability to leverage public data experience on private data.

Access: The Equation of Innovation

Innovation isn’t just about invention; it’s also about distribution. The companies that can effectively disseminate their AI technologies will be the ones that truly innovate. Will the model makers and/or the cloud computing infrastructure providers become gatekeepers (in the same way Apple and Google have for mobile) or will new ways of reaching users emerge?

Losers: The End of Certain Jobs as We Know Them, But…

The rise of generative AI will inevitably lead to the decline of many professions. From customer service representatives to market research analysts, jobs that involve word-heavy cognitive tasks are at risk. The line between discrete and continuous, repetitive and creative tasks is blurring, and the implications are far-reaching. And the next wave of innovation promises to lend these capabilities to robots, who could quickly replace most blue-collar jobs once available. Despite this clear, inevitable trend lies a more complex reality : demographics are changing fast and most of our countries have started to face a labour shortage issue which is only getting worse. Germany, for instance, will have a lack of 7m workers by 2035. As our population ages, we absolutely need a big productivity boost, and that will come from AI.

Risks: The Known and Unknown

The introduction of any revolutionary technology comes with its share of risks, and generative AI is no exception. From job displacement to ethical dilemmas, exacerbation of misinformation to the potential for global cyberattacks, the scale of threats is unprecedented. Even more concerning is the possibility of “runaway AI,” where self-improving algorithms outpace human intelligence by orders of magnitude. While this could lead to groundbreaking advancements in medicine and energy, it also poses existential risks, such as the potential for mass oppression. Ignoring these could lead to unintended consequences that could overshadow its benefits.

Conclusion

While in this article we barely scratched the surface of what it means for the world, you can see that Generative AI is not just a technological advancement; it’s a paradigm shift. The stakes in the world of generative AI are astronomically high, both in terms of opportunities and risks. Its potential to reshape industries, create new opportunities, and address global challenges is immense. For investors, the question isn’t whether they can afford to invest in technology, but rather, can they afford not to? In any case, as we stand on the cusp of this revolution, the choices we make today will shape the world for generations to come.

Disclosure: this article was co-authored with ChatGPT 4.0