AI's Disruptive Impact and Economic Implications Across Industries

Key Quotes

"It’s fascinating to see this year how we've gone in most of those sectors to how positive can GenAI be for these companies? How well are they going to monetize the opportunities? How much are they going to take advantage internally to take their own margins up? To flipping in the second half of the year, mainly to, how disruptive are they going to be? And how on earth are they going to fend off these challenges?"

Adam Wood highlights a significant shift in how companies are viewing Generative AI (GenAI). Initially, the focus was on the positive potential and monetization of GenAI. However, this has now pivoted to concerns about disruption and the ability of companies to defend against emerging challenges, indicating a maturing and more complex understanding of AI's impact.

"And investors can clearly see the benefit of GenAI. And so investors are right to ask the question, well, where's the revenue for these businesses? You know, where are we seeing it in info services or in IT services, or in enterprise software. And the reality is today, you know, we're not seeing it. And it's hard for analysts to point to evidence that -- well, no, here's the revenue base, here's the benefit that's coming through."

Adam Wood points out the current disconnect between investor enthusiasm for GenAI and tangible revenue generation. He explains that while investors recognize the potential benefits, there is a lack of concrete evidence of increased revenue in sectors like IT services and enterprise software, leading to investor focus shifting towards the risks.

"So, if you look at the cloud market shares of the big three hyperscalers in Europe, this number is courtesy of my colleague George Webb. He said it's roughly 85 percent; that's how much they have of the cloud space today. The telcos, what they're doing is, they're actually reselling the hyperscale service under the telco brand name."

Emmet Kelly illustrates the dominance of hyperscalers in the European cloud market, holding approximately 85% of the market share. He clarifies that telcos are primarily acting as resellers of these hyperscale services, rather than offering their own distinct cloud solutions.

"So, if you look at the design guys, they're embracing the agentic system thing really quickly and they're putting forward this capability of an agent engineer, so like a digital engineer. And it -- I guess we've got to get this right. It is going to enable a faster time to market for the design flow on a chip."

Lee Simpson discusses the rapid adoption of agentic systems within the semiconductor design sector. He explains that the introduction of "agent engineers" is expected to significantly accelerate the time-to-market for chip design processes.

"What I would say is there was a great paper that came out from Harvard just two weeks ago, and they were looking at the scale of data center investments in the United States. And clearly the U.S. economy is ticking along very, very nicely at the moment. But this Harvard paper concluded that if you take out data center investments, U.S. economic growth today is actually zero."

Emmet Kelly cites a Harvard paper to emphasize the profound impact of data center investments on the U.S. economy. He highlights that without these investments, the current U.S. economic growth would be negligible, underscoring the critical role of data centers.

"So, three of our five markets are constrained in Europe. What is interesting is it started with the former Prime Minister Rishi Sunak. The UK has made great strides at attracting data center money and AI capital into the UK and the current Prime Minister continues to do that. So, the UK has definitely gone; moved from the middle lane into the fast lane."

Emmet Kelly points out that three of Europe's five major data center markets (Frankfurt, Ireland, and Amsterdam) are facing constraints. He contrasts this with the UK's proactive approach under both former Prime Minister Rishi Sunak and the current Prime Minister, which has positioned the UK as a leader in attracting data center and AI investment.

"And on the cost side, you know, General Mills is a company who's actually relatively, you know, far ahead, I'd say, in the AI adoption curve in staples broadly and what they've done is deployed what they call digital twins across their network and it's improved forecast accuracy they've taken their historical productivity savings from 4% annually to 5% that's something that's structural so seeing real tangible benefits that are showing up in the P&L."

Megan Clapp uses General Mills as an example of successful AI adoption in the staples sector, specifically highlighting their use of "digital twins." She explains that this technology has led to improved forecast accuracy and structural productivity savings, demonstrating tangible financial benefits.

"So, the larger debate is is a little bit of sales cannibalization and a potential bit of retail media cannibalization so your first point is agentic theoretically opens up a bigger e-commerce penetration and just more commerce and once you go to more e-commerce that could be beneficial for some of these companies we can also put the counter argument of when e-commerce came direct to consumer type of selling could disintermediate the captive retailer sales again maybe maybe not."

Simeon Gutman discusses the dual concerns of sales and retail media cannibalization arising from agentic commerce. He explains that while agentic commerce could increase e-commerce penetration, there's a potential for it to disintermediate traditional retailer sales, similar to the impact of the initial rise of e-commerce.