The irresistible growth of AI is already having a profound impact on the way many companies operate. Any that haven’t yet felt the disruption soon will. Investors need to understand how AI will affect their investments and the opportunities and challenges it presents.
If you mention AI to the average person on the street, the chances are the first thing they will think of is ChatGPT. If it isn’t, they probably thought of Google — or perhaps NVIDIA. Our Quality Growth (“QG”) and Global Quality Growth (“GQG”) Strategies invest in the former, but not the latter. While NVIDIA has been one of the S&P 500’s star performers in the last 12 months, it’s not part of the Jensen Strategies because it has not achieved a 15% return on equity (ROE) for 10 consecutive years. Both Microsoft (MSFT) and Google (GOOGL) have met that ROE benchmark. As of Q3 2023, Microsoft, a major investor in OpenAI (the creator of ChatGPT), is the largest position in both QG and GQG. Similarly, Alphabet — owner of Google — is a top-five holding for QG and a top-10 holding for GQG.
AI’s influence extends far beyond these tech giants, however. This article focuses on the impact AI is having further downstream on two other companies in our strategies.
Generative AI is a game-changer for all industries, comparable to cloud-based servers over a decade ago. Its potential is already clear: a survey of global executives found that 97% believe Generative AI will be transformative to their company and industry, while 67% plan to increase tech spending — with a focus on data and AI.“
Accenture (ACN) is a Dublin-based technology services and consulting group. It works with many of the biggest technology companies in the world as well as major banks and other institutions looking to harness technology to expand their businesses, with its strategy being to deliver compressed transformation to those clients.
Accenture believes as AI matures it can help deliver more transformational tech opportunities for lower costs. We tend to agree, which is why it is a top-10 holding in QG and a top-five holding in GQG as of Q3 2023.
In June 2023 Accenture committed to investing $3 billion into AI over three years,1 a sum that represents nearly 5% of its $61.6 billion in reported revenues for 2022. This aptly demonstrates the potential it sees in AI. As part of this investment, Accenture will double its data and AI workforce to 80,000 people and pursue other investments and partnerships to position itself at the forefront of diagnostic, predictive and generative AI (GenAI), which derives its name from its ability to be creative — to literally generate text, images and other forms of content.
Accenture is still in the experimentation phase with AI. It is developing a raft of GenAI-powered industry solutions that, once market-ready, are intended to make it an invaluable partner to its clients. The closest to fruition is AI Navigator for Enterprise, which will help companies identify ways to use AI responsibly to improve their businesses.
The consultancy is already working with clients to help them deploy GenAI. Mitsui Sumitomo Insurance is developing generative AI to enhance its ability to extract information from policy clauses, laws and regulations, in an effort to improve customer services and operations. LyondellBasell Industries is exploring how AI can improve its capabilities across the entire business, from sustainability to customer data and digital manufacturing. We think success in these and other ventures will encourage others to increase their investments in AI and will benefit Accenture.
GenAI is a game-changer for all industries, comparable to cloud-based servers over a decade ago. Its potential is already clear: a survey of global executives found that 97% believe GenAI will be transformative to their company and industry, while 67% plan to increase tech spending — with a focus on data and AI.
For now, though, the full force of GenAI’s disruption has not yet been felt. Accenture has announced many products, but relatively few are ready for broad deployment. To some extent this can be said for AI more generally: the potential is undeniable, but the precise form it will take is yet to be seen.2
Intuit (INTU) is a U.S.-based financial software company that is currently a top-10 holding in QG, with GQG also holding a position. It sees opportunities to use AI in its products to help clients make more money, increase efficiencies, and improve customer satisfaction and convenience.
Intuit is currently focused on using AI and machine learning to augment its tax and accounting software platform, rather than building a new platform. The first stages of this integration are already underway, with an AI application taking notes and summarizing human interactions with clients in its TurboTax and QuickBooks platforms. The company’s true ambitions are far bigger. Intuit has registered about 700 AI-related patents, covering areas like natural language processing and machine learning. These will benefit from Intuit’s considerable trove of data, which includes 730 million customer interactions and 58 billion machine learning predictions daily over the last five years.3
Intuit’s proprietary GenAI operating system (GenOS) is a financial LLM (large language model), a form of AI that analyzes huge tracts of written content to learn to summarize and create its own. That will make it faster, smarter and easier for customers to use. Intuit is also working with OpenAI to integrate ChatGPT, which is expected to further enhance its performance.
However, Intuit also exemplifies the risks that AI poses to many companies hoping to harness its opportunities. AI could significantly disrupt its TurboTax offering, with ChatGPT already demonstrating its ability to determine someone’s tax liability by uploading the tax code to the system. We still believe Intuit will be a net beneficiary of increasingly sophisticated AI, but it must be prepared for considerable disruption in its legacy businesses. There is still a long way to go in the development of AI. Some of the big winners in this industry may not have even emerged yet, while other leading technology companies could slip up and fall behind. As AI develops, our screening process gives us confidence that the companies in our strategies are well-positioned to profit from AI in the years to come.
AI’s disruptive potential is already being felt far beyond the tech sector. It is a catalyst that we expect will drive growth across the entire economy, and we already see evidence of its impact across all our strategies. We think investors should consider its potential impact on all their investments.
By only investing in companies that have delivered a 15% ROE for 10 consecutive years, our goal is to select businesses with strong, forward-thinking management teams and robust operational processes. We believe this gives them a huge advantage in recognizing and seizing the opportunities that AI presents.
We invest in Accenture and Intuit via our Quality Growth and Global Quality Growth Strategies.
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The company discussions in this article are solely intended to illustrate the application of our investment approach and are not intended as investment recommendations or an indication that that our investment decisions have been or will be profitable.
Past performance is no guarantee of future results. The information contained herein represents management’s current expectation of how Jensen’s investment strategies will continue to be operated in the near term; however, management’s plans and policies in this respect may change in the future. In particular, (i) policies and approaches to portfolio monitoring, risk management and asset allocation may change in the future without notice and (ii) economic, market and other conditions could cause the strategy and accounts invested in the strategy to deviate from stated investment objectives, guidelines and conclusions stated herein.
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