Australia’s largest company by market capitalisation on the ASX is CBA and with a P/E ratio of over 30 times, the CEO Matt Comyn has a hard job ahead of him to meet the lofty expectations of the investor masses and keep profitability growing at record levels, particularly when the closest banking competitors have P/E’s that are roughly half.
One tailwind to help Matt Comyn meet those expectations will be Artificial Intelligence (AI) so I take heed when he remarked recently at the AFR’s AI Summit on the risk of going from the “lucky country to the left behind country”. The declining rate of our productivity is alarming (growth rate at 60-year lows) and whilst I agree with the Business Council of Australia’s recent report on taking action to accelerate our AI Agenda (aiagenda.bca.com.au), it feels like there’s a lot of faith being placed in government to find solutions. I’m not convinced that our government is going to be able to move quickly enough. Larger institutions are already pressing forward with AI so it’ll be the engine room of our economy (small/medium businesses) that will determine whether we are “left behind”.
Of course, the elephant in the server room is whether we even have the energy network capacity in the future to power the exponential growth of data centres. It’s all well and good to rely on AI for business efficiency but how reliable is the other necessary ingredient: electricity? Last year, Morgan Stanley predicted that by 2030, 8% of our power network would be chewed up by data centres. Amazon has just announced it will increase its investment in Australian AI capabilities (including data centres and energy generation) to $20 billion by 2029. These changes are necessary but they are coming fast, they’re well resourced and they’re in Amazon’s best interests.
My primary concern is that we’re all too slow with this change. Since Amazon launched its online retail offering in late 2017, countless retailers that were too slow to adapt have gone out of business: small, medium and large. AI is a tool that increases productivity and competitiveness which can also compress profitability. Businesses (and countries) that can’t adapt, will be squashed. Those that can, might struggle from lower profitability, but at least have a chance to buy time and help keep Australia competitive.
Now this might all sound a bit dreary, but the upside is that this AI revolution might well save our flagging productivity and help us grow. Some commentators have talked of it putting people out of jobs but it’s good to remember that we’ve gone through an incredible technology revolution in the computing age and yet we still today have full employment. Sure, jobs at the phone exchange or processing Kodak film might be gone, but those who adapt will thrive. So best to embrace that change is upon us and learn new, more efficient ways of going about our lives.
In the meantime, keep an eye out for the reporting season in late Winter/Spring of Australia’s biggest companies. I suspect they’ll have used AI to write their Annual Reports, touch up the graphics and explain their lofty expectations for growth, all thanks to AI…
