Artificial Intelligence (AI) has firmly established itself as one of the defining technological innovations of the 21st century, with the potential to reshape every facet of society and the global economy. Applying Carlotta Perez’s framework of technological revolutions from her book Technological Revolutions and Financial Capital, we can better understand the evolution of AI and its implications for the future. This analysis explores how AI is currently progressing through the Installation Period, where speculative investment dominates, and how it may advance into the Deployment Period, where it will mature and transform industries, businesses, and daily life.

Overview of Perez’s Framework

Perez identifies two main periods in a technological revolution:

1. Installation Period: A time of experimentation and speculative investment where financial capital funds the infrastructure of the new technology. This period is often characterized by a speculative bubble and a subsequent crash.

2. Deployment Period: The technology stabilizes, and its benefits are widely diffused across society, driving sustainable economic growth and significant societal transformations.

By examining AI within this framework, we can anticipate its trajectory and understand its impact on various aspects of society.

The AI revolution is in the Frenzy Phase of the Installation Period, marked by extraordinary investment, rapid innovation, and hype surrounding its potential. Speculative activity in AI is at an all-time high, with companies, governments, and individuals betting heavily on its transformative promise.

Current Industry Dynamics

Technology and Software

• Generative AI: Tools like OpenAI’s ChatGPT, Google’s Bard, and other large language models (LLMs) are revolutionizing communication, software development, and creativity. Companies are integrating these models into workflows to enhance productivity.

• Enterprise Solutions: Firms like Salesforce and SAP are embedding AI into customer relationship management (CRM) and enterprise resource planning (ERP) tools, enabling businesses to streamline operations and provide tailored customer experiences.

Finance and Investment

• AI is optimizing portfolio management, enabling predictive analytics, and driving algorithmic trading. For example, BlackRock’s Aladdin platform uses AI to manage risk and allocate resources.

• Fraud detection powered by AI is becoming standard at major financial institutions like JPMorgan Chase, detecting anomalies in transaction data in real time.

Healthcare

• Diagnostics and Drug Discovery: AI is identifying diseases earlier and more accurately than ever before. Startups like PathAI and large players like Pfizer are leveraging AI for diagnostics and accelerating drug development timelines.

Retail and E-Commerce

• Retailers such as Amazon and Walmart are using AI to optimize supply chains, forecast demand, and provide personalized recommendations. AI-powered chatbots are transforming customer service by providing immediate, 24/7 support.

Energy and Sustainability

• AI is driving energy efficiency through smart grid optimization and renewable energy forecasting. For instance, Google DeepMind has improved energy usage in its data centers by 40% using AI.

Projections for the Next 1-3 Years: Closing the Installation Period

As AI approaches the end of the Installation Period, it will likely experience both spectacular breakthroughs and inevitable growing pains.

Expansion of Generative AI

• Tools like ChatGPT and Microsoft’s CoPilot will become ubiquitous in the creative and business sectors, automating tasks such as content creation, software coding, and marketing campaign design.

• AI will increasingly serve as an assistant for professionals in law, medicine, and engineering, reducing mundane workloads and improving productivity.

AI in Transportation

• Autonomous vehicle technology will gain regulatory approvals in certain markets. Companies like Tesla, Waymo, and Cruise may deploy AI-driven fleets for public transportation and last-mile delivery.

Widespread Automation

• Retail and logistics will embrace AI at scale, with robotic warehouses, automated inventory tracking, and cashier-less stores becoming more prevalent.

• Manufacturing industries will adopt AI-driven quality control systems, reducing defects and downtime.

Projections for the Next 10-20 Years: Entering the Deployment Period

AI will embed itself into every sector, creating efficiencies and enabling innovations:

Healthcare

• Real-Time Monitoring: Wearable devices and sensors powered by AI will monitor patients continuously, detecting early signs of illness.

• Robotic Surgery: AI-enabled robotics will perform minimally invasive surgeries with unprecedented precision.

• General Practice physicians and mental health professionals may be increasingly replaced by AI Chatbot tools

Education

• Personalized Learning: AI will adapt educational content to individual students’ needs, creating highly effective learning experiences.

• AI Tutors: Virtual tutors, powered by AI, will become commonplace, assisting students in STEM fields and beyond.

Energy and Sustainability

• AI will optimize renewable energy grids, balancing supply and demand to achieve net-zero carbon emissions.

• In agriculture, AI-powered drones will monitor crops, apply fertilizers precisely, and predict weather impacts, increasing yields.

Transportation

• AI-driven logistics networks will reduce delivery times and costs while minimizing environmental impact.

• Fully autonomous public transport systems will improve urban mobility.

  
  

In the long-run, AI could add trillions of dollars to the global economy. McKinsey estimates that AI could deliver $13 trillion in annual economic activity by 2030.  AI will enhance healthcare, education, and public infrastructure, improving life expectancy and reducing inequality in many regions.  While some jobs will disappear, new roles in AI oversight, ethics, and hybrid AI-human collaboration will emerge.  By the maturity phase, AI will likely catalyze entirely new industries, such as brain-computer interfaces or AI-driven biotechnology.

Artificial Intelligence is poised to transform industries, elevate productivity, and improve lives worldwide. By applying Carlotta Perez’s framework, we can see that AI is currently in the speculative Frenzy Phase but holds the potential to transition into a period of sustainable growth and societal benefit during the Deployment Period. If managed responsibly, AI could usher in a new golden age of innovation and prosperity. However, its challenges must be addressed proactively to ensure equitable and ethical outcomes.

Our job as investors and stewards of client capital will be to identify companies and industries who are most proactively seeking to benefit from artificial intelligence to drive growth and efficiencies while avoiding industries that may be disrupted or displaced entirely.  These systems have become exponentially more powerful in recent years, and we anticipate this trajectory to only continue.

Important Disclosures

Past performance may not be representative of future results and all investments are subject to loss. Forecasts regarding the market or economy are subject to a wide range of possible outcomes. These views are as of the date listed on the material and are subject to change based on changes in fundamental economic or market-related data. Please note:  ChatGPT was utilized in the efforts to create this article.  ChatGPT is a widely available artificial intelligence tool.  In this case, ChatGPT was used for the purposes of confirming research sources and structuring the article for drafting purposes.  The actual written product is from our firm’s professionals. These materials are not intended as any form of substitute for individualized investment advice. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.