Surging investment in the artificial intelligence revolution is showing no signs of slowing. Global funding for generative AI reached US$25.2 billion in 2023, nearly nine times the investment in 2022.
Gen AI takes AI (or machine learning models that learn to make predictions based on data) a step further to create new and original output.
The emergence of gen AI has taken some of the shine off traditional AI with private investment declining for the second year to US$95.99 in 2023. However, the decrease from 2022 was small at only 7.2 per cent and despite the recent falls, private AI investment globally has grown substantially in the last decade, notes the Stanford University’s Artificial Intelligence Index Report 20241.
In fact, AI’s influence on society has never been more pronounced, the report says.
The impact of gen AI’s reach includes an acceleration in scientific progress; improved productivity with studies finding AI enables workers to complete tasks more quickly and to a higher quality; and smarter modelling with AI now surpassing human performance on several benchmarks.
According to Goldman Sachs economists Joseph Briggs and Devesh Kodnani, widespread usage of Gen AI could boost global labour productivity by more than one percentage point a year.
However, they write that for large-scale transformation to occur, businesses will need to invest significantly in physical, digital, and human capital to acquire and implement new technologies and reshape business processes.
With these conditions in place, Briggs and Kodnani write, AI-related investment could peak as high as 2.5-4 percent of US GDP and 1.5-2.5 percent of GDP in other major AI players, including China and the United Kingdom.
Finance is the top adopter
The finance sector is leading the charge in AI integration with one of the highest adoption rates of any industry2. Global business intelligence platform Statista says the sector’s embrace of traditional AI, such as machine learning, since the late 2000s has put it in the box seat for the emergence of gen AI.
AI has transformed financial services but it’s only the beginning. Figures for AI generally in financial services, including gen AI, vary widely between US$35 billion3 and almost $45 billion4. Projections for market size by the end of the decade range from US$50 billion to $150 billion.
In 2023, almost twice as many global financial industry experts believed AI was important for the future success of their companies as in 20225. According to a survey carried out in 2024, more than 50 per cent of the respondents said AI plays a crucial role in their business' success. In contrast, only three per cent thought the role of AI was insignificant in the future success of their companies'.
The unprecedented pace of change brought about by AI is redrawing the financial landscape. Some of the changes have been refined over time, others have taken on a life of their own with the arrival of gen AI.
Faster data analytics, better fraud prevention and machine learning algorithms, more comprehensive risk assessment and compliance checks are all familiar benefits of AI.
Now, gen AI and enhanced AI tools are turbocharging those benefits.
For example, portfolio management is getting a makeover with cost savings thanks to the automation of routine tasks such as data analysis and reporting, the creation of individual investor profiles and portfolio optimisation.
Algo trading is also benefiting from improved insights based on gen AI’s ability to find patterns in historical data and predict trading signals by finding hidden correlations, enhancing market analysis and risk management. While some argue this reduces human biases, others suggest that AI algorithms can reinforce existing biases when systems are trained on biased, old or limited data sets6.
The massive opportunities in function and output brought about by gen AI need to be accompanied by appropriate risk and compliance controls.
Meanwhile, stock markets are making use of AI-powered systems for risk management and fraud detection. The systems identify unusual trading patterns, detect potential market manipulations and recognise fraudulent activities—all at lightning speed – flagging suspicious activities in real time7.
Data is king
As the use of AI filters throughout organisations and society, the quality and availability of data has never become more important.
AI relies heavily on vast datasets to identify patterns and generate meaningful insights but there are challenges to be overcome in data collection.
Integration is an important one. Much data is held in unstructured formats – such as PDFs, Word documents and emails – or in diverse systems, such as CRM, sales and inventory. Extracting and ‘cleansing’ this data is an important step in providing ideal conditions for gen AI to flourish.
A 2022 global study8 found 86 per cent of financial services institutions lacked confidence in using their data to drive decision-making. Their biggest challenges were delayed access to data, not being able to get data or not getting it in the format needed. Almost all respondents reported data silos operating within their organisation.
Iress is revolutionising data access and analysis with its next-generation data platform and product, built on top of a cutting-edge cloud native data lakehouse infrastructure. This solution simplifies data access, integration and enables AI and machine learning capabilities. It will allow Iress’ clients to unlock the full potential of their data, Iress data and beyond.
Later this year, Iress Order Management System (IOS+) and Iress FIX Hub data is expected to be available in the new data lakehouse, which will help improve the efficiency of trading compliance and risk management workflows.
This article was originally published on stockbrokers.org.au.
Footnotes:
- https://aiindex.stanford.edu/report/
- https://www.statista.com/topics/7083/artificial-intelligence-ai-in-finance/#topicOverview
- AI in Financial Services Market Size & Industry Growth 2030 (futuredatastats.com)
- AI in fintech market size 2024 | Statista
- https://www.statista.com/statistics/1254700/importance-of-ai-financial-services/
- https://theconversation.com/chatgpt-powered-wall-street-the-benefits-and-perils-of-using-artificial-intelligence-to-trade-stocks-and-other-financial-instruments-201436
- https://www.forbes.com/sites/forbesbusinesscouncil/2023/07/17/how-artificial-intelligence-is-revolutionizing-stock-investing/?sh=7e5757be6485
- https://www.intersystems.com/resources/the-top-data-and-technology-challenges-in-financial-services/
