The AI transformation is coming to UK companies

“A computer would deserve to be called intelligent if it could deceive a human into believing that it was human.”

(Alan Turing, British computer scientist, Computing, Machinery and Intelligence, 1950)

We associate the current AI revolution with the US tech giants, but the foundations of AI lie in the UK. British mathematician Alan Turing was among the first theorists to explore the possibility that if humans use available information and reason to solve problems and make decisions, then why couldn’t machines?

It was Turing who, in 1950, devised the Turing Test, originally called ‘the imitation game’. He proposed that a machine’s ability to exhibit intelligent behaviour equivalent to, or indistinguishable from, a human was the benchmark for artificial intelligence. In the last few years, with the appearance of chat bots and generative AI, it looks like we have leapt over that hurdle.

“In from three to eight years we will have a machine with the general intelligence of a human being.”

(Marvin Minsky, American cognitive scientist interviewed in Life Magazine, 1970)

From there to here has been a longer journey than many theorists expected. Early AI progress was held back by the lack of computing power, but exponential growth in the amount of computer processing power available for a diminishing cost has helped drive recent breakthroughs. Although it’s taken longer than the predictions of the 1960s and 1970s, the progress of AI appears to be hitting a tipping point of exponential advancement.

‘Generative AI’ arrived with the launch of ChatGPT in November 2022. It differs from the artificial intelligence algorithms that have been used for many years because of its ability to generate new content such as text, images, music and videos.

The ripple effect of this technology cannot be ignored, and it is now a topic of conversation in nearly all of the company management meetings that we have hosted since its launch. Generative AI matters to everyone. 

“By far the greatest danger of artificial intelligence is that people conclude too soon that they understand it”

(Eliezer Yudkowsky, American artificial intelligence researcher, article in Global Catastrophic Risks, 2008)

Direct beneficiaries such as Nvidia have held the limelight to date. Nvidia has risen in value to become worth over US$3 trillion at the time of writing – by comparison, the GDP of the UK in 2023 was £2.274 trillion.

However, as the infrastructure and know-how develop, indirect beneficiaries will follow.

The rapid advancements and adoption of AI is exacerbating tensions between the process of decarbonisation and the need for more energy to fuel the computational engines required for generative AI. Rene Haas, chief executive of ARM, for example, has predicted that by the end of this decade, AI data centres could consume as much as 25% of US electricity, up from 4% today.¹

The demand for electrical infrastructure, copper and fuel to power the electrical turbines will create environmental, scientific and commercial threats and opportunities. Change is the inevitable outcome, and this will provide opportunity – for example, British Land is well positioned to capitalise on the growing demand for data centre capacity

“Astonishing! Everything is intelligent!”

(attributed to Pythagoras of Samos, c. 530 BC)

AI is creating change across a broad array of sectors and companies, not just those at the forefront of the technology but also those that are using it to improve productivity and customer outcomes.

Trustpilot, a holding within the AXA Framlington UK Mid Cap Fund, is looking at AI to help recognise and report on fake reviews. It is also being used to rank reviews by order of importance and help automatically generate relevant responses for end-users. By improving the customer experience and the value of the product, AI could enhance Trustpilot’s customer relationships, thereby reducing churn and increasing the lifetime value of their customers.

Another company using generative AI to enhance the customer experience is Coats, which designs, manufactures and delivers threads to footwear and apparel markets globally. Generative AI allows them to respond more quickly to customer demands, helping to increase productivity, reduce waste and improve supply chain and support functions.

Rotork is an engineering company producing industrial flow equipment, such as valve actuators, gearboxes, control systems, instrumentation and accessories. By integrating more advanced sensors, they are creating data that can be transformed into useful information via AI algorithms. For example, data analysis can diagnose the signature of an actuator that is close to fault, so that accurate predictive maintenance can be carried out.

There are concerns about the potential misuse of generative AI, including cybercrime or the creation of fake news and deep fakes that can be used to coerce or manipulate. Phishing attacks will be almost impossible to recognise, increasing the need for cyber detection, protection and remediation. This is creating opportunities in the cyber security sector for companies such as Darktrace and Chemring, both of which we hold within the portfolio.

There will of course be business models that are fundamentally threatened by this technology. Generative AI has immense potential to accelerate productivity, but this could be hugely disruptive. Why would we need to use an expensive solicitor for simple legal tasks such as conveyancing for example, when generative AI could complete the processes quickly and efficiently?

These are trends we’re watching carefully. The full impact of AI has yet to play out and will create significant opportunities in the mid-cap company range, where innovative use of new technologies has extraordinary potential to create growth.