Global equities: Where to look for AI winners

Looking for exposure to AI? Go beyond big tech and look for companies using the technology to improve efficiency or build competitive advantage, says senior Pendal global equities analyst SUE SCOTT

• AI transforming business
• Look for productivity, product winners
• Find out about Pendal Concentrated Global Share Fund

THERE’S little doubt artificial intelligence technology has the potential to revolutionise the way business is conducted.

But for investors, finding the ultimate winners from AI is a challenging task.

Much of the early AI excitement this year has focused on the big tech firms that are developing the technology and the systems it runs on.

But for investors looking for a longer-term play, Pendal’s Sue Scott says a better approach may be to find the businesses succeeding in deploying AI in their own operations.

“There’s a lot of hype factored into what AI means for future earnings,” says Scott, senior investment analyst for Pendal Concentrated Global Share Fund.

“But our focus has been looking at the companies where AI is being successfully used as a tool for productivity and product development.”

Example one: copper mining

Scott says one early success has been at Freeport-McMoRan, one of the world’s largest copper miners, which has been able to drive higher production by deploying AI to recommend operational improvements.

“Freeport was asking the question ‘how do we get more out of what we’ve got, without spending a huge amount of capex?’ says Scott.

“They started with one mine in Arizona, trying to learn about AI and machine learning and what it could do to enhance their existing systems.

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“They brought in the site operators, AI developers, and metallurgists to work together on training an AI model to make recommendations on setting mill processing rates.

“The result was a significant 5 per cent increase in production and a lift in copper recovery rates.”

Fed by sensors on the mine’s trucks, shovels and machinery, the AI model adjusts settings every hour to maximise production from different types of ore.

Over five years, Freemont will unlock the equivalent of one new processing facility in additional copper production.

Example two: solar panels

A second example of successful AI deployment is at French oil and renewables giant Total Energies, which has a target of switching its global service station network to solar power.

“Total operates in about 60 countries and runs thousands of service stations and they’re well on the way to achieving the solar goal,” says Scott.

“But during the project they realised that a lot of the places they operate were not covered by high satellite imagery — which is critical to working out a site’s solar potential.

“What they did was partner with Google to use generative machine learning models to develop a tool to measure solar potential in specific areas where there was no high-quality satellite imagery.

“The tool can also be used estimating the potential output of solar panels on private houses or on commercial and industrial sites.”

Higher productivity and earnings

AI is an important factor for investors to consider because it has the potential to lift productivity and earnings across industries.

“But some companies will be faster than others,” says Scott.

“Freeport has been working on this for five years. This isn’t a new thing. But it will incrementally improve as the technology improves.

“Our investment philosophy is always to own the dominant players in any particular market.

“To keep that edge, it’s important for us to see that they’re at least looking at these kinds of technologies.

“In a world where you’ve got supply chain issues, inflation, and margins under pressure, companies that can extract productivity from very little investment — which is what Freeport have done — are going to have an edge when it comes to profitability.

“They are the sorts of companies we like to invest in.”

Investors should also be mindful of the critical role of a company’s chief technology officer.

“The role of chief technology officer in any company is becoming increasingly important — and not because not just because of AI, but also because of the threat of cybersecurity.

“It’s also becoming increasingly important to have technology expertise at a board level as well.”