The evolution of artificial intelligence is creating new challenges and investment opportunities for defined contribution pension plan members, said Kathrin Forrest, equity investment director at Capital Group, during a session at Benefits Canada’s 2024 DC Plan Summit in February.

While the technology itself isn’t new, AI has rapidly developed in recent years, exemplified by generative AI platforms such as ChatGPT. “Traditionally, it was based on a set of predefined rules and could produce some specific output, such as image recognition. Now we’ve evolved into a space of generative AI where now the tools and applications are able to learn and generate new data. That is really the ground-breaking new development.”

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The infrastructure that’s underpinning this expansion also provides DC plan members with investment opportunities, said Forrest, citing the example of computer chip manufacturer Nvidia Corp., which saw its value increase by roughly 265 per cent year over year.

“The numbers are massive. Even if you don’t really want to follow AI specifically, you can’t really avoid it. [AI requires] companies that manufacture chips, which, in turn, require companies that manufacture the chip-making equipment. It’s an ecosystem of highly specialized companies that are tightly connected and integrated across the globe.”

There are also investment opportunities in the data centres and cloud computing platforms that provide the computing power behind AI platforms. “Within the equity investing space, we want to find areas where companies have the opportunity to grow revenue and profit, ideally in a long-term, sustainable and resilient way. Some of the things we need to think about are technological change and change in competition, change in customer preferences, resource scarcity, all those potential externalities, areas of disruption that might change profitability over time.”

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The platforms themselves, such as Microsoft Corp.’s Copilot, also present opportunities for investors, she said, adding the possibilities for AI are expanding in sectors such as health care and financial services.

“You have a company that has a large user base and existing software. It can put another application right on top of it and charge you an extra fee. That is a really easy way to monetize AI capabilities for a company like Microsoft today.”

The technology presents several challenges, including the potential for inaccuracy or misinformation, as well as privacy concerns around personal data. However, at least one of these hurdles — AI’s massive energy consumption — may also yield further investments opportunities for DC plan members.

“One Nvidia processor uses 700 watts. Nvidia is looking to sell 1.5 to two million of these units just this year. . . . Companies in this space are doing a ton of work and research into hydrogen fuel cells, geothermal technology and nuclear technology. All of this is happening within the large technology companies.”

Read more coverage of the 2024 DC Plan Summit.