Artificial intelligence is already helping businesses to increase operational efficiency and enhance customer experiences. But the long-term impact of AI could be far greater.
Experts at Parnassus Investments, a partner of Equities.com, predict that AI could reshape industries, create new business models and “bring about applications we haven’t even imagined yet.”
In a recent report titled “Examining the Impact of Artificial Intelligence on Business Sectors,” experts at Parnassus assessed the existing and potential use cases of AI adoption in key sectors,
“In our experience, high-quality businesses tend to remain high quality even during periods of technological change or rapid innovation. Companies that are forward thinking and have the resources, data assets and innovation capabilities are better positioned to benefit from AI,” the report states.
The Parnassus report examines the future impact of AI on a wide range of sectors, including agriculture, banking, hospitality and healthcare. With a focus on investors, the report asks the question: Will companies be able to monetize AI? The findings seek to identify the risks and rewards of AI in a particular sector as it relates to long-term returns.
“The debate about whether companies will be able to monetize AI relates to how and when they make capital allocations to invest in AI technology to improve their businesses. This is not an overnight proposition. Some companies have already been on the path to adopting this technology for years. Others are exploring it. And some are still in ‘wait and see’ mode,” the report states.
The Parnassus report places companies in three categories on the AI path: “enablers,” “providers” and “adopters.”
The earliest beneficiaries of the latest AI boom have been enablers, according to the report.
“These companies are using their free cash flow to facilitate AI infrastructure offerings—from the chip makers advancing the computing power of personal computers to the companies operating data centers and other services that help drive the learning models forward, such as Microsoft MSFT , Amazon AMZN and Alphabet GOOGL ,” the report explains.
“Providers” are giant software providers, such as Oracle ORCL , Salesforce CRM and Intuit INTU , offering specialized software with AI features. Those features are powered by the proprietary data of their customers.
Finally, AI “adopters” are companies working to integrate AI into their business. This integration is made possible by leveraging the proprietary data the companies have collected over time.
Parnassus makes the case that, of these three categories, the enablers are currently monetizing AI. But opportunities lay ahead for providers and adopters. The investment firm said it was watching for signs that companies are “expanding margins—either through topline revenue growth, operational cost savings or both.”
“We also see proprietary data as the killer app of the AI era because it can help companies drive revenue growth by enhancing their products and services and save costs by increasing productivity and efficiency,” the report added.
Read on to learn more about how each of the four sectors are tapping into the potential of AI, as well as what to consider in terms of the impact of AI on issues like data privacy and the environment.
Industrials and materials sector
AI is already impacting companies in the industrials and materials sector. The groundbreaking technology requires new data centers to run AI models, increasing demand for building products and cooling systems.
Parnassus makes the case that some companies are already seeing impacts from data center construction, energy efficiency, improved product design and predictive monitoring technologies.
“These improvements are not merely incremental enhancements, but rather essential steps toward the sector’s evolution, effectively setting the stage for more significant long-term transformations, like the assembly line was over a century ago,” the report states.
Parnassus added that in the long term AI could bring benefits through advanced robotics and more efficient supply chains and assembly lines. Such changes could help lower costs through automation, redefine quality-control standards and improve worker safety.
Ferguson Enterprises FERG , a prominent distributor of plumbing, HVAC and other building products, and Deere & Co. DE , the agriculture solutions company best known for its iconic green tractors, are examples of companies in the sectors impacted by AI.
Ferguson is building distribution centers designed to streamline operations through AI automation and robotics to manage inventory and logistics. The report notes that this approach gives Ferguson a “competitive advantage over primary competitors.”
Deere, meanwhile, straddles AI categories. The company’s AI-powered tractors employ machine vision to target weeds, landing it in the enabler category. As a provider, its army of engineers write software to help its equipment sense and react to its surroundings. Finally, as an adopter, Deere continues to invest in AI innovations to make farming processes significantly more efficient and help “to feed more people with less land and cost.”
Enablers, providers and adopters of AI should keep in mind the technology’s impact. Parnassus notes concerns around environmental costs, worker safety and the potential displacement of employees should all be carefully considered.
Financials sector
Banks are still deeply reliant on forms, paperwork and manual processes such as handling customer payments and mortgage originations. But AI could help expedite time-consuming data-processing chores. AI can help banks detect errors in loan processing, enhance customer service, streamline operations and strengthen fraud detection.
“Automating such tasks may not only speed up operational processes, it can also free up staff to focus on improving the customer experience, which can increase customer retention,” the report states.
Insurance companies could also improve their operations by using AI to better forecast weather risks and underwrite policies. Financial advisors can rely on AI to create more personalized financial plans.
Bank of America BAC , for example, has developed an AI-powered chatbot called ERICA. The chatbot handles 22 million daily customer interactions, most of them routine, like setting up auto payments or checking credit scores.
“At the same time, Bank of America is opening more branches for face-to-face meetings with customers to deepen loyalty and focus on products that drive revenue,” the report states.
Allstate ALL and Progressive PGR are also relying on AI. The companies are using new tools to enhance insurance underwriting, forecasting and risk mitigation. “This technology helps them maintain a competitive edge by refining risk assessment and pricing strategies,” the report states.
For companies adopting new AI tools in the financials sector, Parnassus argues that balancing AI advancements with ethical considerations around tracking data privacy and security should be top of mind.
Consumer sector
The impact of AI on the consumer sector is wide-ranging. Companies like MercadoLibre MELI , the leading e-commerce and payments company in Latin America, are using AI to help improve their client experience by using AI to offer more personalized products and targeted recommendations.
Entertainment companies like Netflix are using AI to recommend programs or generate ideas for new programming. And Airbnb ABNB , as well as hotel giants like Marriott International [MAR] and Hilton Worldwide [HLT], are relying on AI to personalize accommodations and concierge services, such as local recommendations.
“Broader AI adoption may help improve operational efficiencies by making the sales process more efficient, strengthening supply-chain resilience and introducing new advances in speed to market as well as warehouse and distribution management,” the report states.
Mirroring the financials sector, companies in the consumer sector relying on AI tools should be aware of concerns around consumer data privacy and security.
Healthcare sector
One of the prime examples of the use of AI in healthcare is Pfizer PFE and Moderna MRNA both relying on the new technology to accelerate the development of their COVID-19 vaccines.
AI offers a range of uses within the healthcare sector. The immediate application of AI relates to operational efficiency, such as automating claims processing and customer service. But AI can also help accelerate drug development, such as in the case of the COVID-19 vaccines, by speeding up R&D work to “identify proteins, detect biomarkers and discover irregularities in datasets,” the report states.
But there is arguably no sector where data privacy and security are more important than in the healthcare sector. There are significant risks to consider, including possible data breaches. Given the regulations and sensitivity around patient and genomic privacy, Parnassus points out that data needed to drive advanced drug development using AI may be restricted for some time.
“The sector must balance innovation with privacy and regulatory obligations to realize AI’s full potential responsibly,” the report states.
The Parnassus report “Examining the Impact of Artificial Intelligence on Business Sectors” was researched and written by Krishna Chintalapalli, Portfolio Manager, Senior Analyst; Robert Klaber, Portfolio Manager, Director of Sustainability Research; Samantha Palm, Portfolio Manager, Senior Analyst; Shivani Vohra, Portfolio Manager, Senior Analyst; Michael Beck, CFA, Senior Analyst; John Bogle, CFA, Senior Analyst; and Shaun Raja, Senior Analyst.
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