There is no question the dominant theme in stock markets last year was AI (artificial intelligence), in particular generative AI.

In an interview with Time magazine last June, Sam Altman – the former chief executive of OpenAI, whose ChatGPT product has been at the forefront of the AI trend – said he believes the technology will ‘transform the way people work and the way people learn. It’s going to transform the way people interact with the world. In a deep sense, AI is the technology that the world, that people have always wanted’.

So, for the final part of our survey, we thought we would ask fund managers what impact AI might have on their portfolios and their stock picks for the year ahead.

HOW WILL AI IMPACT YOUR INVESTMENTS IN 2024?

George Ensor, R&M UK Listed Smaller Companies Fund (B1DSZS0)

‘While we don’t underestimate the impact AI is going to have, the market has been very quick to decide on which companies are winners and which are losers. We expect the answers are going to be more nuanced and take time to be realised. There are obvious productivity opportunities for many companies as well as risks from new AI-enabled competitors.’

Julian Bishop, Brunner Investment Trust (BUT)

‘AI is already everywhere and will only grow in importance with time as the broad shift towards information technology continues. On a personal level, I’m hoping Microsoft’s (MSFT:NASDAQ) forthcoming AI ‘Copilot’ for Office 365 will help me better summarise company meeting notes and reduce the time needed to construct financial models – two examples of its many purported uses. AI will also generate business for IT implementation firms, and further boost demand for semiconductors, where we have several holdings we think will benefit.’

Jean Roche, Schroder UK Mid-Cap Fund (SCP) 

‘AI has been around financial markets for 10 years now and is in use to a greater or lesser degree in many products and services. It’s just been re-badged and democratised. Last Christmas I was learning to write witty poems about my kids with the help of Chat GPT, now we have our own “AI sandbox” at Schroders, called Genie, which helps me to be more efficient in how I read annual reports, for example. Some would liken AI models to very well-qualified and resilient graduates with boundless energy – dangerous if left to pick stocks on their own, but if guided well, can help experienced investors make more informed decisions.

‘Looking across our top 15 holdings, I see multiple beneficiaries of AI – either users of or suppliers to this growth industry, for example Computacenter (CCC), Man Group (EMG), Oxford Instruments (OXIG) and Spectris (SXS).’

Kartik Kumar, Artemis Alpha Trust (ATS)

‘AI will shape business dynamics for the next decade, but the impact over the next year is hard to predict. Unlike the internet, I think it is more likely to be an enabling technology than a disruptive one. The long-term potential benefit to financial services seems underappreciated. These companies have significant customer-facing and support functions where cost could be reduced through automation.’

Stephen Yiu, Blue Whale Growth (BD6PG78)

‘This year portfolio companies such as Nvidia (NVDA:NASDAQ) have benefited enormously from the proliferation of AI and its democratisation through the development of services such as Chat GPT, Adobe Firefly, and DALL.E, amongst others.

‘We see “the AI revolution” as a long-term theme, the importance of which should not be underestimated. Where digital transformation was the story of the past decade, the AI revolution is where we see the majority of growth coming in 2024. As global titans, such as Microsoft (MSFT:NASDAQ) and Meta (META:NASDAQ), embrace AI, the quality growth opportunities are incredibly exciting. The portfolio is invested accordingly.’

James Henderson, Henderson Opportunities Trust (HOT)

‘AI has been totally overhyped this year in the same way that hydrogen was a couple of years ago. AI will become hugely important, just as hydrogen will, but it will take time. The market wants these things to happen much quicker than is possible in reality.’

William Tamworth, Artemis UK Smaller Companies Fund (B2PLJL5)

‘With any exciting new technology there is the risk its impact can be over-estimated in the short term. We believe the potential negative impacts of AI have in some instances been overstated – for example, in the case of digital publisher Future (FUTR) or enterprise translation provider RWS (RWS), which also has its own leading machine translation offer. Some companies are already using AI to make their businesses more efficient – we expect more of this but it will be a relatively gradual process.’

Guy Anderson, Mercantile Investment Trust (MRC)

‘‘This theme has captured imaginations this year, and the long-term potential of AI is not to be underestimated. Although we would urge a degree of caution, there are some pockets of the market where we are already seeing genuine transformation. Our investments in Bytes (BYIT) and Softcat (SCT) could benefit as their corporate and public sector customers start to adopt generative AI solutions.’

Charles Montanaro, Montanaro UK Smaller Companies (MTU)

‘There are several companies in the portfolio which may benefit from advances in AI. Kainos (KNOS), an IT services company, is harnessing the power of generative AI to make its own software engineers more efficient, while also winning AI-related projects with customers. Bytes Technology (BYIT), a leading software reseller in the UK, stands to benefit via its partnership with Microsoft (MSFT:NASDAQ), as the tech giant rolls out CoPilot features across its Office suite. XP Power (XPP), a provider of power supplies, sells to manufacturers of equipment used to produce semiconductors, and thus may indirectly benefit from an increase in manufacturing capacity required to make more AI chips.’

Simon Barnard, Smithson (SSON)

‘While there will be a limited impact on our portfolio companies in the coming year, in the long term we expect AI to help reduce costs and produce new products. Many of our companies already use some form of AI combined with machine learning to process data, while others such as Verisk Analytics (VRSK:NASDAQ), the US insurance data company, are starting to research the potential uses of generative AI to offer new products.’

Stuart Gray, Alliance Trust (ATST)

‘Although it has huge potential to boost productivity, we are wary of much of the hype surrounding AI. As with the internet bubble 20 years ago, it could take several years before the clear AI winners emerge.

‘While we do have exposure to AI today, through Microsoft (MSFT:NASDAQ) for example, our stock pickers are playing it company by company rather than as a portfolio theme. The key will be which companies are able to use AI to improve their efficiency or customer offerings and outperform their competition.’

Richard Penny, Crux UK Smaller Companies (BQV37J7)

‘We own shares in FD Technologies (FDP:AIM) whose KX Systems subsidiary has just launched a product KDB.AI. KX Systems sells database products which are very good at handling high-volume and very fast streams of data, and on various metrics, are significantly superior to other solutions. These capabilities are very important for training AI systems such as Chat GPT and using vector databases such as KDB. AI can avoid the need for GPU-type products, which have propelled Nvidia (NVDA:NASDAQ) to significant highs.

‘The UK market has a very different attitude to growth and FD Tech shares have been punished for the investment and shortfall in profits and now trade close to £10 having been £22 earlier this year. The revenues for this business are c£65 million and we believe it can grow by 30% to 40% over the next three to five years. The company has sales partnerships with AWS, Microsoft Snowflake and Databricks. We believe this business is currently valued c1x this year’s sales, and that the shares should benefit from a multi-year growth in revenues and a more generous US style valuation metric which can be between five and 15 times revenues.’

James Harries, STS Global Income & Growth Trust (STS)

‘It is hard to predict exactly how AI will impact our portfolio and markets more broadly in 2024. There is much excitement (hype) embedded in valuations and expectations currently which may actually recede somewhat in the coming months.

‘This may lead to a resurgence in the performance of more defensive but currently overlooked areas of the market. This is descriptive of our quality focused, conservatively managed portfolio and should benefit our relative performance.’

Helen Steers, Pantheon International (PIN)

‘We have already seen the application of AI in some portfolio companies, for example in customer interactions through chatbots, or content generation in graphics for entertainment. Venture Capital comprises just 3% of the portfolio, so direct exposure to AI is limited, but we expect a wider spectrum of applications to come out of this area as significant tools for better productivity and efficiency are developed in the coming years. Our portfolio is focused on asset-light, high margin and less labour-intensive businesses, which we believe are well placed to benefit from AI in the future.’

Thomas Moore, Aberdeen Equity Income (AEI)

‘It’s probably too early to say with any great confidence which company will be the key winner in the advent of artificial intelligence (AI). All the companies we invest in are doing the due diligence of how AI will impact them and their efficiency.

‘Take Speedy Hire (SDY) for example a UK-based tools and equipment hire business. The company is looking at how they can improve their operational efficiency, so they have teamed up with an AI specialist to improve their efficiency to make sure they have the right products in place to meet customer demand. In addition to this companies have been telling us that they can use AI to control costs.’

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