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Thematic Investing
Me, Myself and AI - Artificial Intelligence
Primer
Thematic Investing

This is a redaction of a 97 page report published on February 28, 2023. 08 March 2023 Corrected
Equity
‘If data is the new oil, then AI is the new electricity’ Global
More data is created per hour today than in an entire year just two decades ago, and
global data is expected to double every 2 years. We are entering the age of the
Yottabyte, but still, only 1% of global data is being captured, stored and used. This is
about to change. We are at a defining moment – like the internet in the ‘90s – where
Artificial Intelligence (AI) is moving towards mass adoption, with large language models
like ChatGPT finally enabling us to fully capitalize on the data revolution.

The iPhone moment for AI

Until now AI could only read and write but could not understand content. Generative AI
models like ChatGPT has changed this, enabling machines to understand natural
language, and produce human-like dialogue and content. 4 reasons why this could be the
‘iPhone moment’ for AI: (1) democratization of data; (2) unprecedented mass adoption; Haim Israel >>
(3) warp-speed technological development; and (4) abundance of commercial use cases. Equity Strategist
Merrill Lynch (Israel)

Democratization of data. ChatGPT empowering people. Martyn Briggs >>

Equity Strategist
Large language model (LLM) based chatbots like ChatGPT democratize data and make it MLI (UK)
accessible to all without the need for training or experience. Thus, mass adoption is Felix Tran >>
unprecedented. It took ChatGPT just 5 days to reach 1 million users, 1 billion cumulative Equity Strategist
MLI (UK)
visits in 3 months and an adoption rate which is 3x TikTok’s and 10x Instagram’s. The Kate Pavlovich >>
technology is developing exponentially. In the last decade, computing power to train the Data Science Rsch Analyst
MLI (UK)
AI datasets doubled every 3 months, outpacing Moore’s Law by a factor of 6x. In the
past 4 years the number of parameters for large language models grew 1,900x. And
within a decade, AI models could be 1 million times more powerful than ChatGPT today.

$15.7tn for GDP, $900bn market, $8tn mcap enablers

By better capitalizing on data, AI could boost the world economy by up to $15.7tn by
2030 (PwC). Furthermore, the global AI market, which includes software, hardware and
services, could reach $900bn by 2026E (IDC). Every sector will be impacted, but the
immediate beneficiaries include tech hardware (semis, GPUs, data centres), software
(cloud, analytics) and cyber (phishing).

Challenges: ESG
What’s not to like? Training a single AI model could emit as much as 5x the lifetime
emissions of an average car. Concerns also remain on ethics, copyright, accuracy, and
‘hallucination’. Heavy text and service-based industries’ unemployment could also
increase inequality.

Trading ideas and investment strategies discussed herein may give rise to significant risk and are
not suitable for all investors. Investors should have experience in relevant markets and the financial
resources to absorb any losses arising from applying these ideas or strategies.
>> Employed by a non-US affiliate of BofAS and is not registered/qualified as a research analyst
under the FINRA rules.
Refer to "Other Important Disclosures" for information on certain BofA Securities entities that take
responsibility for the information herein in particular jurisdictions.
BofA Securities does and seeks to do business with issuers covered in its research
reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report. Investors should consider this
report as only a single factor in making their investment decision.
Refer to important disclosures on page 19 to 20. 12529805
Timestamp: 08 March 2023 01:08PM EST
 Artificial Intelligence in 4 Charts
2
Thematic Investing | 08 March 2023

Exhibit 1: Everything you wanted to know about AI in 4 charts

We are entering the fifth industrial revolution with the global AI market expected to grow to $900bn by 2026E and total private investments doubling between 2020-21. The number of large language model
parameters have grown nearly 2000x in the past 4 years and since its launch ChatGPT has had over 1 billion cumulative web visits

The fifth industrial revolution involves the combination of humans and machines at work Global AI market is expected to grow at 19% CAGR to reach US$900bn by 2026E
The five waves of industrial revolution Global AI market size (US$ bn)
$1,200
AI Software AI Services AI Hardware Total AI Market

$900
$900
$750
$640
$600 $550
$450
$383
$318
$300

$0
2020 2021 2022E 2023E 2024E 2025E 2026E

Since its launch on 11/30/22, ChatGPT had over 1bn cumulative web visits up to and Global private investment in AI totalled US$93.5bn in 2021, more than double the total
including 2/5/23. private investment in 2020
Daily total visits to ChatGPT Global corporate investment in AI by activity type, 2013-21 (US$ bn)
30,000,000 200.0
176.5
180.0

160.0

140.0
20,000,000 119.5
120.0

100.0

80.0 67.0
10,000,000
60.0 47.3 45.6
40.0 29.2
19.8
15.0
20.0 5.2
0 0.0
11/30/2022 12/31/2022 1/31/2023 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: 1) BofA Global Research, KnowHow; 2) BofA Global Research, IDC; 3) SimilarWeb; 4) NetBase Quid, 2021 and 2022 AI Index Report
BofA GLOBAL RESEARCH
ChatGPT FOMO – BofA Proprietary Data
Exhibit 2: 5 days from launch ChatGPT reaches 1mn users vs 14 Exhibit 3: Conversations about ChatGPT have overtaken those on
days for TikTok inflation on Twitter by 53%
Daily unique visits to ChatGPT and cumulative TikTok downloads after their Seven day moving average of the phrases 'inflation'/'#inflation' and
launches 'chatgpt'/'#chatgpt' on Twitter
3,500,000 250,000
Daily Unique Visits (ChatGPT)* Cumulative TikTok Downloads** ("inflation" OR #inflation) ("chatgpt" OR #chatg pt)
3,000,000
200,000

2,500,000
150,000
2,000,000

1,500,000 100,000

1,000,000
50,000

500,000
0
0
Day 10

Day 11

Day 12

Day 13

Day 14

Day 15
Day 1

Day 2

Day 3

Day 4

Day 5

Day 6

Day 7

Day 8

Day 9

Source: BofA Global Research, *Similarweb, **SensorTower Source: BofA Global Research, ListenFirst
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Exhibit 4: Subscriber numbers have increased 191x since 4 Exhibit 5: The US takes the largest market share of web traffic to
December 2022 ChatGPT of 12.3%
Subscribers on Reddit (r/chatgpt) Market share of web traffic to ChatGPT (chat.openai.com)

250,000 14.0% 12.3%

12.0% 10.3%
200,000 10.0%
8.0%
6.0% 4.9%
150,000
3.4% 3.3%
4.0%

100,000 2.0%
0.0%
United States India France Germany Canada
50,000
Source: BofA Global Research, SimilarWeb
BofA GLOBAL RESEARCH
0
5-Feb-23
15-Jan-23

22-Jan-23

29-Jan-23
4-Dec-22

11-Dec-22

18-Dec-22

25-Dec-22

1-Jan-23

8-Jan-23

Source: BofA Global Research, ListenFirst

BofA GLOBAL RESEARCH

Thematic Investing | 08 March 2023 3

How will AI impact industry?
Exhibit 6: Likely key winners and losers from Artificial Intelligence/Machine Learning/Large Language Models
An analysis of how AI/ML/LLMs will likely impact industry
Industry Impact Comments
IT
Software
++ AI or large language models (LLMs) can help developers write code for program applications and software. It can also debug code and suggest improvements.
development

The emergence of AI and LLMs could represent one of the strongest upcoming drivers of semis. Computational requirements for running AI models are
Semiconductors ++
increasing due to the processing power needed to train them.

Data centres ++ As data continues to grow at an exponential rate, more data centres are required to store that data.
With the emergence of LLMs like ChatGPT, it is easier for threat actors with limited programming skills to generate code for cyberattacks e.g., legitimate-
Cybersecurity ++ sounding phishing emails. Hence, ChatGPT and similar models are likely to have broad-based implications on the cybersecurity sector in terms of email security,
identity security, and threat detection.
Traditional search engines could be replaced by chatbot applications like ChatGPT, however, it is likely that search engines are going to be used in conjunction
Search engines ++
with generative AI to improve the user experience.
Communication
services
Education ++ LLMs could drive online learning, writing textbooks and providing online learning modules.
LLMs can be used for content generation e.g., writing news articles, social media posts, marketing content, story-writing, summarising text, media planning and
Media ++
advertising.
Music ++ AI and LLMs can be used to transpose music, generate melodies, chord progressions and lyrics. It can even analyse music and generate reviews and comparisons.
Legal ++ LLMs can write legal documents and summarise legal cases. ChatGPT is even capable of writing legal essays that passed law exams.
Healthcare
AI can help doctors make more data-driven decisions that improve the patient experience. It can be used for remote patient monitoring, population health
Telemedicine ++
management using predictive analytics, reminding patients of health appointments, training junior doctors and providing more accurate patient diagnoses.
AI can help with the initial screening of drug compounds to predict its success rate. It can further identify the right candidates for trials based on their medical
Pharmaceuticals ++
history.
Financials
AI can help analyse the data that banks, diversified financials and insurance companies have to conduct predictive analysis. AI could analyse an individual's credit
Banks ++ history and calculate the likelihood of default. These companies can also retain customers for longer by providing additional services based on their spending and
financial activities.
AI can help fintech companies automate the credit risk assessment process, detect bank fraud, increase safety, automate the customer service experience and
Fintech ++
analyse user behaviour.
Capital Goods
Aerospace + Aerospace companies can use AI to improve fuel efficiency by using recorded data and optimising fuel consumption.
AI-powered weapons could be the focus point of the next arms race. In addition, image and video recognition could be used for surveillance. This could increase
Defence +
national general security while reducing human intervention.
Source: BofA Global Research estimates. NOTE: *++ large positive impact; +positive impact
BofA GLOBAL RESEARCH

4 Thematic Investing | 08 March 2023

Executive summary – all the answers you
need
Key acronyms
• AI = Artificial Intelligence

• ML = Machine Learning

• DL = Deep Learning

• LLM = Large Language Model

• NLP = Natural Language Processing

• GPT = Generative Pretrained Transformer

• GPU = Graphics Processing Unit

• TPU = Tensor Processing Unit

Q: What is Artificial Intelligence and what are the key technologies?

Artificial Intelligence (AI) leverages large data sets and uses algorithms to find
underlying relationships, which can be used to drive new or better business outcomes.
Some of the key AI technologies include machine learning, deep learning, predictive
analytics, natural language processing and machine vision.

Q: Algorithms, Machine Learning, Deep learning. What is the key difference?

A: Algorithms (= set of instructions) can be used for machine and deep learning
An algorithm is a finite set of instructions that is used to solve a well-defined
computational problem. Algorithms can be used to carry out machine and deep learning.
Linear regressions and logistic regressions are some examples of machine learning
algorithms.

Machine learning is a subdivision of AI that uses computerised mathematical algorithms,

which can learn from the data and teaches itself to progress as the data keeps
fluctuating. Put differently, rather than having humans write programmes, computers
themselves determine programme functions from the data. Machine learning algorithms
automatically apply mathematical calculations to big data to learn from past data to
produce repeatable and reliable decisions and results, e.g., improved video suggestions
based on past video viewing activity. In general, with machine learning, if the data is of
the same type, then increasing the amount of data will result in an improvement in the
accuracy of output.

Deep learning is the subset of machine learning and includes algorithms inspired by the
function and structure of the brain called artificial neural networks. Deep learning's
strength stems from the system's ability to ascertain additional data relationships that
are difficult to identify. After sufficient training, the network of algorithms constantly
improves predictions or interpretations, e.g., improved product rankings based on
relationships of data that humans cannot easily identify.

Q: What is the economic potential of AI?

A: Up to US$15.7tn by 2030
AI could contribute up to US$15.7tn to the global economy by 2030 (source: PwC), while
open data (data that anyone can access, use and share) has the potential to unlock
US$3.2-5.4tn in economic value annually via, for example, reducing emissions, increasing
productivity, and improving healthcare (source: McKinsey). According to IDC, global
revenues for the AI market, including software, hardware, and service sales, will grow at
a CAGR (2022E-26E) of 19% to reach US$900bn by 2026. Big Data and AI could double

Thematic Investing | 08 March 2023 5

the gross value added (GVA) growth rates of developed markets by 2035E and add 0.8-
1.4ppt to global productivity growth in the long run. The Big Data ecosystem will have
tremendous positive impacts on society and over half the benefits could be captured as
consumer surplus and public benefits rather than corporate profits.

Q: How much funding is there for generative AI?

A: A lot! Investor and corporate funding, government support, and Gen C
Investor funding increased 71% YoY in 2022 from US$1.5bn to US$2.6bn. Even global
private investment in AI increased 48% YoY in 2021 to US$93.5bn, more than double the
total private investment in 2020. In February 2023, Google announced a US$300mn
investment in the AI startup, Anthropic. Governments around the world are increasingly
seeking to promote and provide funding for AI development and innovation e.g., in 2020,
the US passed the IOGAN ACT (Identifying Outputs of Generative Adversarial Networks
Act), which directed the National Science Foundation to support research on generative
adversarial networks and other relevant technology.

As the population ages and Gen Zs and Gen Cs make up a larger portion of the
population, AI adoption should increase too because these two generations, particularly
Gen C, will be unable to live without tech in most aspects of their lives. By the end of
2021, Gen C numbered 700mn, or c.9% of the world’s population. They are estimated to
reach up to 2bn by 2025 or c.20% but will be smaller in size than Gen Z due to declining
birth rates (source: Kinetics). In the case of ChatGPT and Bard, younger generations are
more aware of them and see them in a more favourable light: 18% of Gen Zs know of
them compared to only 6% of Boomers. Similarly, 15% of Gen Zs have a positive opinion
about them compared to only 4% of Boomers.

Q: Large Language Models (LLMs): the next generation?

A: LLMs have become more advanced at processing human language
Large language models are models that use deep learning in natural language processing
(NLP) uses. An LLM is a transformer-based neural network which predicts the text that
is likely to come next. The performance of the model can be judged on how many
parameters it has (i.e., the number of factors it considers when generating output).
Natural language processing (NLP) is the AI technology that enables machines to
understand human language including slang, contractions, and pronunciations, and
consecutively produce human-like dialogue and text. Natural Language Processing
entails applying different algorithms to identify and extract natural language rules to
convert the unstructured language data into a form that computers can interpret. A real-
world example is improved results for voice search queries.
Since 2020, natural language systems have become more advanced at processing human
language, particularly in terms of sentiment and intent. They can generate human-like
text, and express understanding about an image through language (visual understanding).

Q: What is ChatGPT and why is it such a hot topic among investors?

A: ChatGPT is a chatbot that amassed 1mn users in just 5 days after its launch
ChatGPT is a chatbot, that can generate coherent human-like text. It is the first
application of its kind that is openly available to a wide audience. Until now AI could only
read and write but could not understand content. Generative AI models like ChatGPT
changed that, enabling machines to understand human language, and consecutively
produce human-like dialogue and content. Since its launch on 30 November 2022,
ChatGPT has gained significant traction, amassing one million users after merely five
days.

6 Thematic Investing | 08 March 2023

Q: What is the technology behind ChatGPT and why is it so ground-breaking?
A: Generative AI, LLM with 20bn parameters, built from scale and RLHF
The technology underpinning ChatGPT is a language model that uses machine learning
and natural language processing to predict the next word in a sentence based on
previous entries. Hence, ChatGPT is classified as a form of generative AI. ChatGPT is a
variation of GPT-3, a large language model (LLM)

The second key differentiator is that this model is trained using reinforcement learning
from human feedback (RLHF). This is where the model generates outputs that are
labelled and calculated for some reward objective, such as to represent human
preferences for how a task should be done or things to avoid (e.g., harmfulness).

Q: How can ChatGPT be used? What are the drawbacks to its capabilities?
A: Content generation, data extraction, but can produce incorrect answers
Since ChatGPT can generate human-like text, it can be used for content generation (e.g.,
writing essays, news articles, social media posts, marketing content, stories, music,
emails), data extraction, summarising text, optimising web browsers, language
translation and computer programming. Programmers are already using this technology
for program generation (platforms that can give suggestions as one writes code e.g.,
GitHub Copilot) or to explain code or concepts.

However, ChatGPT can hallucinate (i.e., generate an incorrect answer with confidence).
Furthermore, it is not able to make decisions or deal with too much memory/generation.

Q: What are the wider risks of this technology?

A: Automation in the workplace, cyberattacks, emissions, data misuse, IP
Since ChatGPT can generate human-like content, it is possible to introduce automation
in sectors that are based on idea generation e.g., advertising, art and design,
entertainment, music, media and legal. This would help drive the fifth wave of industrial
revolution – the coexistence of humans and machines.

ChatGPT can respond to harmful instructions. Therefore, it could lower the barrier to
entry for threat actors because it opens the door for more malware, phishing, and
identity-based ransomware attacks. Cybercriminals have already found ways around
ChatGPT’s content filters and policies, which are meant to prevent malware-based code
generation. ChatGPT can quickly produce authentic-looking emails to target an end-
user’s identity credentials. ChatGPT has broad-based implications for cybersecurity,
particularly for email security, identity security, and threat detection.

To train models based on ever-increasing parameters, LLMs require a significant amount

of energy and computing power. Training an AI model creates more 57x more CO2
emissions than a human generates in a year (source: College of Information and
Computer Science at the University of Massachusetts Amherst).
The model could accidently reveal sensitive information and the output can be misused
e.g., tracking individuals. If data is misused, then it could be the case that the model
violates privacy laws e.g., the EU’s GDPR.

Intellectual property is often overlooked before public release and is difficult to

incorporate. It is currently a grey area, as there is currently nothing stopping companies
from using AI-generated content beyond compliance. There are legal challenges between
AI companies and stock photo companies, for instance, meaning that the regulation and
permissions for citing content may change. Partnerships could arise between generative
AI applications and traditional content generating platforms. Some large technology
companies like Google have developed responsible AI principles to avoid unfair bias in AI
models. However, incorporating fairness and preventing bias becomes difficult when
training models with billions of parameters.

Thematic Investing | 08 March 2023 7

Q: Which areas are likely to be the most positively impacted by this technology?
A: Semiconductors, data centres, cybersecurity, software
Firstly, semiconductors are a likely beneficiary because the training of these LLMs
requires significant computing power. Secondly, as data continues to grow at an
exponential rate, more data centres are needed to store that data. Thirdly, since
cyberattacks are more likely, the cybersecurity sector is likely to benefit, particularly
email security, identity security and threat detection. Finally, software companies are
likely to benefit due to the increased need to develop ChatGPT-like technology to
support new products.

Q: Which sectors are likely to be disrupted by this technology?

A: Sectors using text data are likely to incorporate this tech to increase
productivity
Any industry that uses text data might be affected by this technology e.g., call centres,
legal searches, document writing, authoring, jobs involving spreadsheets, insurance and
healthcare are areas that involve a large amount of text data.

It is important to bear in mind that AI and machine learning are enabling technologies. AI
must be coupled with something to be useful. Hence, whilst these advanced language
models could be disruptive to these sectors in terms of replacing jobs that involve
relatively routine tasks, jobs in these sectors will not disappear altogether. They are
likely to incorporate AI, allowing for greater productivity potential.

Search engines could become more conversational, embedded with language models.
This would be a new user interface within search engines rather than a disruption of the
search engine market in general.

Q: How can developers keep the data used to train these models up to date?
A: Linking the LLMs to external databases
Over time, language models can be linked to external databases, making them easier to
update over time. WebGPT is an example which can use internet information to update
the model and would need retraining only periodically. Data volume could be a constraint
to LLMs where they could exhaust all public data, code, and text.

Q: How is the technology going to evolve?

A: Towards multimodality
This technology is likely to evolve beyond single applications (e.g., text and images)
towards multimodality – for instance, using text, images, voice recordings as prompts to
generate a response from the AI system. More proficient language model deployment
could proliferate conversational tools into (e.g.) word processors, virtual video meetings
and email systems to enable their onboarding for more users to interact via speech.
Another application is that this technology could be used to generate entire
programming applications rather than just being able to suggest or explain code.

There is debate on the competencies of AI chatbot systems; whether they could be

applied to any industry vertical in their current capabilities and parameters, or whether
they need to be verticalized to become more commercially useful. In the long term,
LLMs may be general enough so that verticalization is no longer needed. However, in the
short-term, LLMs may need to be domain-specific to achieve an increase in performance
in the industries that intend to use them.

Q: What is the key differentiator between these LLM models?

A: Quality and size of underlying data
There is no technical difference in how technology companies are approaching LLMs.
The key differentiating factor between these AI models is the quality and size of the
underlying data used to train the models. Google DeepMind’s Chinchilla research paper

8 Thematic Investing | 08 March 2023

suggests that more data is required and up to 5x more training of models to realise the
benefits of their size.

Q: What are the barriers to entry?

A: Operating costs, computing power, talent, data implies large tech companies
Sectors that can combine computing power, data, and talent to enable AI could capitalise
on the commercial opportunities. Operating costs (e.g., semiconductors, staff) could
present a large barrier to entry. As the parameter size increases, costs increase too. A
single search query in a GPT-like system can cost two to three US cents. This could be
challenging to absorb when such models perform billions of queries a day. For this
technology to be more viable, we would likely need a 10-20x improvement in efficiency,
otherwise it would be too costly for entrants to deploy them commercially.

Reinforcement Learning from Human Feedback involves difficult engineering, as

companies need to build their own. This problem is compounded by scarce talent: a small
number of people know how to do this and work for a small number of companies.

Thematic Investing | 08 March 2023 9

Artificial Intelligence 101
AI – the fifth wave of IT-driven productivity growth
We believe that Big Data and AI (artificial intelligence) are propelling the fifth wave of
IT-driven productivity growth (Exhibit 7).
Exhibit 7: The fifth industrial revolution involves the combination of humans and machines at work
The five waves of industrial revolution

Source: KnowHow
BofA GLOBAL RESEARCH

According to IDC, global revenues for the AI market, including software, hardware and
service sales, will increase at a CAGR (2022E-26E) of 19% to reach US$900bn by 2026
(Exhibit 8).
Exhibit 8: Global AI market is expected to grow at 19% CAGR to reach US$900bn by 2026E
Global AI market size (US$ bn)
$1,200
AI Software AI Services AI Hardware Total AI Market

$900
$900
$750

$640
$600 $550
$450
$383
$318
$300

$0
2020 2021 2022E 2023E 2024E 2025E 2026E

Source: BofA Global Research, IDC

BofA GLOBAL RESEARCH

Big Data and AI could double the gross value-added (GVA) growth rates of developed
markets by 2035E and add 0.8-1.4ppt to global productivity growth in the long run. AI
could contribute up to US$15.7tn to the global economy by 2030 (source: PwC), while
open data (data that anyone can access, use and share) has the potential to unlock
US$3.2-5.4tn in economic value annually via, for example, reducing emissions, increasing
productivity, and improving healthcare (source: McKinsey).

The Big Data revolution needs to be analysed in tandem with AI since both form a
virtuous circle. The rising size and complexity of datasets have posed challenges for
traditional analytical approaches, and new tools such as AI play a vital role in helping us
to derive new insights from the data. In turn, data-thirsty AI-based algorithms, such as
machine learning and deep learning, are made “smarter” using large amounts of data to
learn from. Big Data is being driven by a mutually reinforcing ecosystem of ubiquitous
connectivity, cheaper storage, and faster compute, in combination with smarter
algorithms.

10 Thematic Investing | 08 March 2023

AI +$15.7tn to global GDP by 2030
Positive economic potential
Most studies conclude that AI will have a significant positive economic impact.

Exhibit 9: Studies generally conclude that AI is likely to have a positive economic impact on
GDP
Comparison of other studies assessing the impact of AI
McKinsey Global
PwC Accenture
Institute
growth doubled by 2035: US growth
Global GDP +14% in 2030 from 2018 growth +0.8% to +1.4%
rate at 4.6% with AI instead of 2.6%
Productivity (replacement and
Labour substitution gains Intelligent automation
augmentation)
Channel of impact
Consumption Labour and capital augmentation
Innovation diffusion
Source: PwC, McKinsey Global Institute, Accenture
BofA GLOBAL RESEARCH

According to Accenture, AI could double annual global economic growth rates by 2035. AI
is likely to drive this in three different ways: firstly, AI will lead to a strong increase in
labour productivity (by up to 40%) due to automation. Secondly, AI will be capable of
solving problems and self-learning. Thirdly, the economy will benefit from the diffusion
of innovation.

A study by PwC estimates that global GDP may increase by up to 14% by 2030 (or
US$15.7tn) due to AI adoption via productivity gains in the manufacturing and
transportation sectors, and due to businesses complementing their workforce with AI
technology. This would enable the workforce to perform tasks better.

McKinsey estimates that AI may deliver an additional economic output of c.US$13tn by

2030, increasing global GDP by 1.2% per year. This is to come from the substitution of
labour by automation and increased innovation in products and services. AI is likely to
create a negative externality in the labour market whereby there is a loss of domestic
consumption due to unemployment.

Channels of AI impact
We discuss ways (ITU, 2018; PwC, 2018) in which AI could impact the economy via
production, externalities, and demand.

Production channels:

• Augmentation: AI may change the Future of Work, reshape existing jobs and
augment human capabilities enabling workers to be more productive.

• Substitution: AI could substitute factors of production e.g., labour since

repetitive tasks can be automated.

• Innovation: Investment in AI can produce economic output through developing

new products and services.

Externality channels:

• Economic gains from increased global flows: digital data is a large

proportion of international flows in the form of knowledge and information
exchange. AI can facilitate more efficient cross-border commerce. Gartner
(2017) estimates that AI-based recommendation engines can contribute c.30-
40% of sales in leading e-commerce players.

• Wealth creation and reinvestment: increased output from efficiency gains

and innovation can be passed on to workers in the form of higher wages and to
firms in the form of profits. Wealth generation could create spillover effects
that increase economic growth.

Thematic Investing | 08 March 2023 11

 • Transition and implementation costs: AI adoption may incur costs e.g.,
severance pay, integration costs, hiring new workers to operate AI.

• Negative externalities: AI could displace workers; hence the increased

economic activity may cause decline in labour share which puts pressure on
employment and wages and could decrease consumption. Furthermore,
government support for affected workers may be required.

Of these seven channels of impact, according to ITU (2018) three stand out. The
substitution of labour could add c.11% or c.US$9tn to global GDP by 2030.
Innovation in products and services could deliver c.7% or c.US$6tn of potential GDP
by 2030. Negative externalities could reduce the gross GDP impact by c.9ppts or
c.US$7tn.

Demand channels:

• Consumption: increased consumer demand resulting from the availability of

higher quality AI-enhanced products and services. PwC (2018) finds that c.58%
of the 2030 GDP impact (or US$9.1tn) is likely to come from the consumption
impact.

• Product personalisation: AI can enable more efficient discovery of consumer

preferences by gathering more data and analysing it. Increased product
personalisation can increase the marginal utility of consumption for a given
product and increase the variety of products available for consumers.

• Product quality: In facilitating better product personalisation, the value of the

product can increase too.

• Time: AI and AI-enabled products could save consumers time and lead to
greater consumption. Gartner predicts that in 2018, half a billion users will save
two hours a day due to AI.

Global GDP could by up to 14% higher in 2030 (+US$15.7tn) vs 2018 due to AI (source:
PwC Analysis). Looking at a breakdown of this increase, demand-side effects are more
delayed but increase significantly over time. This is due to the longer transmission
mechanism from product enhancements to consumption. 58% of all GDP gains in 2030
will come from consumption-side impacts.

North America and China, the expected key winners

North America and China could see the biggest economic gain in percentage terms from
AI (source: PwC, 2018). PwC estimates that AI will enhance GDP by 26.1% in China and
14.5% in North America in 2030, which accounts for c.70% of the global impact. This is
because North America has advanced technological and consumer readiness for AI which
enables a faster effect of AI on productivity and overall, a larger effect by 2030. For
China, this is because productivity and product enhancements GDP effects are higher
than other regions.

All sectors of economy to experience gains from AI

Across the board, there are GDP gains associated with productivity and product
enhancements. The services industry (health, education, public services and recreation
which is labelled as ‘Other public and personal services’) is set to gain the most (GDP
+21% by 2030). Transport and logistics, and financial and professional services are
estimated to see smaller GDP gains of 10% each due to AI.

The services industry is the sector that stands to gain the most. This is mainly due to the
healthcare sector, which should see greater personalisation and quality improvement in the
medical advice. Healthcare professionals could improve the patient experience by using
virtual assistants and camera-based healthcare apps in diagnosing medical conditions.

The distribution of impact across sectors remains consistent across different regions.

12 Thematic Investing | 08 March 2023

What is the outlook for AI?
Government support of artificial intelligence: legislation and initiatives
Governments around the world are increasingly seeking to promote and provide funding
for AI development and innovation. The US is dominating the list of countries with 13
AI-related bills passed into law between 2016 and 2021 (Exhibit 10), but the UK is taking
the lead in terms of number of mentions Exhibit 11.

For example, in 2020, the US passed the IOGAN ACT (Identifying Outputs of Generative
Adversarial Networks Act), which directed the National Science Foundation to support
research on generative adversarial networks and other relevant technology. As another
example, in 2020, the UK passed a provision (c.13) of the Supply and Appropriation
(Main Estimates) Act 2020. This provision authorised the Office of Qualifications and
Examination Regulation to explore the opportunities for AI to improve marking for
important qualifications.

Exhibit 10: The US has taken the lead in the number of AI-related bills Exhibit 11: The UK has had the highest number of mentions in
passed into law legislative proceedings in recent years
Number of AI-related bills passed into law, 2016-21 (aggregate) Total mentions of AI in legislative proceedings, 2016-21 (aggregate)
14 13 1,000 939
900
12
800
10 700
600 559
8 466
6 500 410422
6 5 5 5 400
4 4 4 282
300 222
4 3
200 155158164
2 111120123
2 52 58 67 71 78
1 1 1 1 100 15 21 27 27 31 33
0
0

France
Finland
Ne w Zealand

Canada

Brazil

Australia
Ireland
India
South Korea

Sweden

Germany
South Africa

Japan
Ne therlands
Russia

Singapore
Denmark

Norway

Belgium

Italy

Spain
Switzerland

US

UK
Source: 2022 AI Index Report Source: AI Index, 2021
BofA GLOBAL RESEARCH BofA GLOBAL RESEARCH

Examples of governmental initiatives that support the development of AI:

• USA: The White House is launched a partnership with India on 31 January 2023
which Biden hopes will help both countries compete against China on military
equipment, semiconductors and artificial intelligence.

• China: The Chinese government’s policies on AI include ‘Made in China 2025’,

‘Action Outline for Promoting the Development of Big Data’, ‘Next Generation
Artificial Intelligence Development Plan’, inter alia. China aims for its core AI
industry to have surpassed RMB400bn (c.US$59bn), with AI-related fields
exceeding RMB5tn (c.US$740bn).

• UK: The UK’s National AI Strategy published on 18 December 2022 outlines the
government’s 10-year plan to make Britain a global AI superpower. The UK
government has invested more than £2.3bn into AI across many different
initiatives since 2014. For example, investments include:

o contributing to The Alan Turing Institute and over £46mn to support

the Turing AI Fellowships to develop the next generation of top AI
talent.

o opening 16 new AI Centres for Doctoral Training at universities across

the UK, backed by up to £100mn and delivering 1,000 PhDs over five
years.

Thematic Investing | 08 March 2023 13

 o £250mn to develop the NHS AI Lab at NHSX for the safe adoption of
AI in healthcare.

• India: The Indian Government has published the National Strategy for Artificial
Intelligence which aims to develop an eco-system for the research and adoption
of AI.

Growing Gen C could speed up AI adoption

As the population ages and Gen Zs and Gen Cs make up a larger portion of the
population, AI adoption should increase too because these two generations, particularly
Gen C, will be unable to live without tech in most aspects of their lives. Even 40% of Gen
Z social interaction is online.

By the end of 2021, Gen C numbered 700m, or c.9% of the world’s population, estimated
to reach up to 2bn by 2025 or c.20%, but will be smaller in size than Gen Z due to
declining birth rates (source: Kinetics).

Exhibit 12: A third of the global population is Gen Z and 9% is Gen C Exhibit 13: Gen C accounts for 700mn people
Share of the global population by generation Global population (millions)

Silent
3%

Gen C
9%
Baby Boomers
15%

Gen Z
32% Gen X
18%

Millennials
22%

Source: UN
Source: UN BofA GLOBAL RESEARCH
BofA GLOBAL RESEARCH

Gen Z and Gen C will be more open to AI adoption compared to older generations. Even
in the case of ChatGPT and Bard, younger generations are more aware of them and see
them in a more favourable light: 18% of Gen Zs are aware of the two compared to only
6% of Boomers. Similarly, 15% of Gen Zs have a positive opinion about them compared
to only 4% of Boomers.

14 Thematic Investing | 08 March 2023

Wider risks: automation, cyberattacks,
ethical concerns, emissions
Unclear overall impact on labour: creation vs automation
Don’t underestimate humans’ ability to one up technology
There are areas where humans can beat machines. In the future, we believe there will
likely be an increasing premium for jobs within occupational groups that require social
intelligence, creativity and complex problem solving as opposed to repetitive, low
dexterity skills. For instance, an event planner requires more social intelligence than a
dishwasher in hospitality, fashion designers require more creativity than a seamstress in
apparel, and a medical surgeon requires greater perception and manipulation of tasks
than a clinic receptionist within healthcare. Furthermore, a recent study by McKinsey
flags that ultimately it is activities rather than jobs that are being automated where
US$2tn in wages or 45% of work activities in the US could already be automated with
existing technologies.

Sectors with more routine/manual tasks and limited training/education required

more at risk of automation
PwC estimates that 326mn jobs will be impacted by AI in 2030 where 67% of these jobs
are likely to be ‘unskilled’ jobs. In terms of sectors, Transport and Logistics is a sector
that is likely to see the largest percentage of jobs at risk: averaging c.39% across all
regions. On the other hand, other public and personal services have the lowest
percentage of jobs at risk (average of c.15% across all regions). The two key factors
driving this result is 1) the proportion of time spent on routine and manual tasks and 2)
the amount of training and education required for jobs in those sectors. The Transport
and Logistics sector could have relatively more day-to-day tasks that can be automated
e.g., conducting document checks at customs to ensure a smoother process. In contrast,
the Other public and personal services category includes healthcare which involves a
relatively larger amount of human judgement e.g., performing surgery and diagnosing
patients.

….but don’t disregard the risk from robots either

COVID has hastened the adoption of technologies such as AI, chatbots, robot process
automation (RPA) in white collar roles and industrial robots in blue collar jobs – all of
which we estimate could displace 2 billion jobs by 2030. Up to 47% of US jobs could be
at risk over the next 20 years from computerization. And in Emerging Markets, this
figure could reach 85%.

Machines have their limits: premium for jobs with intelligence and creativity
Workers should look towards tasks with skillsets that robots and computers cannot
easily accomplish in the next 10 to 20 years. For instance, dexterity is something that
current robot hardware technologies have not yet mastered. There will likely be an
increasing premium for jobs that require social intelligence, creativity, and complex
problem-solving.

New jobs are likely to come from health, STEM and managerial roles
AI could also create new jobs, particularly with regard to training and maintaining the AI
technology. The net result on the labour market depends on the number of jobs created
versus the number that are automated.

Job market: automation

Since ChatGPT can generate human-like content, it is possible to automate tasks, hence
displacing certain tasks. It could impact the advertising, art and design and
entertainment sectors. Health and Science are least likely to experience automation but
Manufacturing and Transportation the most.

Thematic Investing | 08 March 2023 15

The differences in impact across sectors can be explained by the potential incremental
value from AI over other analytics techniques. The more science-based sectors like
Aerospace and Defense, Semis, Pharmaceuticals and Healthcare could see relatively
some of the lowest potential incremental values from AI. Hence, these sectors are less
likely to experience job displacement by ChatGPT or similar generative AI programs.

In more than two-thirds of use cases, AI can improve performance beyond that provided
by any other analytics techniques, which explains why on average, sectors are likely to
experience job displacement.

Cyberattacks: could be used to generate malware

ChatGPT may lower the barrier to entry for cybercriminals
ChatGPT lowers the barrier to entry for threat actors and opens the door to more
malware, phishing, and identity-based ransomware attacks. Cybercriminals have already
found ways around ChatGPT’s content filters and policies, which are meant to prevent
malware-based code generation. Phishing attacks are another key attack vector in focus,
as ChatGPT can quickly produce authentic-looking emails to target an end-user’s identity
credentials.

Implications for the cybersecurity sector

Human-written defensive software may not be enough to combat AI-generated malware
which has drastic implications for cybersecurity. Our US Aerospace and Defense
Electronics colleagues have a negative outlook for ChatGPT in terms of cybersecurity:
The weakest link in the cybersecurity chain, regardless of how much companies spend,
are the human users. Forbes reported cybercriminal have already caught on to these use
cases and showcased malicious code written by ChatGPT which can be used to exploit
victims.

16 Thematic Investing | 08 March 2023

AI: Did You Know?

Artificial Intelligence…is intelligent!

• The intensity of just one day's worth of AI training is equal to 150 years of
gaming training for a human.

• 44% of UK adults do not properly understand how AI works…2

• …but 51% of Europeans would like to replace their politicians with AI…3

• …and 49% of people prefer interactions with AI based chatbots, rather than
other humans.4

• The human brain operates at 1 exaFLOP, which has the equivalent processing
power of 1 billion*billion calculations per second.7

• And the computing power of 1 exaflop is equivalent to every human on Earth

doing a calculation per second for 4 years.4

• Training a single AI model could emit about 626,000 pounds of carbon

dioxide or 5x the lifetime emission of an average car.8

• But computing efficiency has actually improved in the past 6 decades where
the energy demand for a fixed computational load has halved every 18
months.9

• At over 8 billion, there are now more AI digital voice assistants than people
on the planet.12

• OpenAI Five plays 180 years’ worth of video games against itself everyday
via self-reinforcement learning.14

Sources: 2 Express, 3 IE University, 4 BBC, Stanford University, Microsoft Research, 7 Science ABC, 8 University of

Massachusetts, 9
MIT Technology Review, 10
World of Statistics, 11
SimilarWeb, 12
Statista

Thematic Investing | 08 March 2023 17

Big Data: Did You Know?

Big Data…is big!

• By the time you finish reading this sentence, c.231mn emails and 6bn
searches on Google and 69mn WhatsApp messages will have been sent and
500 hours of video will have been uploaded on YouTube.1

• We will generate more data in the next 2 days than all the data created
between the dawn of humanity and 2000.2

• … and 90% of global data was created in the last 2 years.3

• Every person generates 1.7 megabytes…every second!4

• Every day we generate 2.5 quintillion (million trillion bytes of data).5

• And data creation is doubling every 2 years.6

• Each person will generate enough health data in their lifetime to fill 300mn
books, or to fill the NY public library 6x.7

• Genomic data is the fastest-growing database in the world. By 2025,

genomic data will surpass YouTube and Twitter combined.8

• Machine-generated data accounted for over 30% of internet data in 2020.9

• Cloud data storage around the world will amount to 200+ Zettabytes by
2025.10

• If you burned all the data created in just one day onto DVDs, you could stack
them on top of each other and reach the moon – twice.11

• Today it would take a person approximately 181mn years to download all the
data from the internet.13

• More data is created every hour today than in an entire year just 20 years
ago.15

Sources: 1 Oberlo, Domo, 2 Eric Schmidt, 3 Forbes, 4 Domo, 5 Domo, WEF, 6 IDC, 7 KPCB, 8 New Scientist PLoS Biology,
9
Handbook of Research on Cloud Infrastructures for Big Data Analytics, 10
Cybercrime Magazine, 11
Bernard Marr,
13
Unicorn Insights, 15
Seagate Rethink Data Survey by IDC, released in January 2020

18 Thematic Investing | 08 March 2023

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20 Thematic Investing | 08 March 2023