Software is eating the world.
Marc Andreesen, noted venture capitalist, said in 2011
AI is eating software
Jen-Hsun Huang, CEO of NVIDIA, said in 2017
The main theme of this blog is that technology is accelerating at an accelerating rate and humanity is entering a new epoch in its evolution. This insight is drawn on the work of Ray Kurzweil and other so-called transhumanists. My economist add to all this is to assert that this technology acceleration to an overwhelming extent is being financed by the global capital markets. It is being driven by the rapid global spread of technology and globalization itself, the profit motive and the discipline of global product markets and far less by government R&D expenditures. The private sector is the prime engine—the big global tech companies, the startups now rising in so many places—the whole army of tech companies around the world. (I don’t regard Trump cuts to science research as being that devastating.) So, if technological acceleration is inevitable, then relax and invest in it.
Favoring technology as an investment is a long-term secular forecast. It is not a forecast of short term tech stock performance. The stock market overall is not 2008 cheap. Every day for the last two years it seems some renowned stock market guru has proclaimed the end is nigh and the market is due for a massive correction. That has not been my forecast and so far the nabobs of negativism have been wrong. But who knows? Every guru has his day. They only have to be right once. If you are worried, sell your stocks or hedge your positions with puts.
But I remain positive. The acceleration of technology constitutes a positive secular force that can offset demographic declines in advanced countries and offset the dead weight of swollen welfare states. Even better, technology can help solve problems created by aging demographics, pollution and world hunger. For sure problems caused by technology can be solved by technology.
AI Is Eating Software? What Does That Mean?
Jen-Hsun Huang, though hardly a household name like Mark Zuckerberg or Jeff Bezos, is one of the most important figures in American technology today. Born in Taiwan, he slipped by the xenophobes and got into the US when he was a child. Jen-Hsun and his company NVIDIA (NVDA) pioneered what are called Graphic Processing Units or GPUs, which today play an indispensable role in gaming, graphic design, cloud data centers and most importantly artificial intelligence (AI) applications such as autonomous cars. Jen-Hsun, who normally comes to speak at conferences attired in a black leather jacket, speaks about AI with the spell-binding zeal of an American revivalist preacher. “Look into my intense crazy eyes,” he said last week to the 7000 attendees at the company’s annual GPU tech conference. I was listening from Hong Kong but I’d bet his entire audience was hypnotized with his vision of AI and the future.
But how can AI be eating software?
The following example, cited in the May 2017 MIT Technology Review, may illustrate just how.
In 2015, a research group at Mount Sinai Hospital in New York was inspired to apply deep learning to the hospital’s vast database of patient records. This data set features hundreds of variables on patients, drawn from their test results, doctor visits, and so on. The resulting program, which the researchers named Deep Patient, was trained using data from about 700,000 individuals, and when tested on new records, it proved incredibly good at predicting disease. Without any expert instruction, Deep Patient had discovered patterns hidden in the hospital data that seemed to indicate when people were on the way to a wide range of ailments, including cancer of the liver.
Deep Patient, a type of AI, was asked to make predictions it had not been “hard programmed” to do. It learned on its own and it was better at its task than trained doctors. It even learned how to anticipate schizophrenia, something even according to the article doctors can’t do. Dr. Joel Dudley, the head of the project, could not figure out how Deep Patient did this.
The computers controlling autonomous cars are going to have to have similar human judgement capabilities. For example they are going to have to figure out how to navigate such unprogrammable things as unpredictable human behavior at four way stop signs.
Exciting? Yes. Scary? A little. The future? Get ready. Profits to be made? Big time.
“Alexa. Does This Fit Me?”
Many people nowadays enjoy the convenience of shopping for clothing online but miss the ability to try clothes on as they used to do in the good old days of shopping at the mall. Have no fear—Amazon (AMZN) is going to solve your problem.
The Amazon solution is Echo Look. Amazon is sticking a camera on its Echo device (home of Alexa the voice) and it’s going to take your picture. Backed up by Amazon’s massive AI and cloud capabilities, it will make you forget you ever tried on clothes at a mall.
Here’s some typical questions (filched from an article by tech guru Patrick Morehead) that Alexa might ask you.
- “would you like to look at scarves that would look great with that sweater?”
“would you like to see how that sweater would look with those pants?”
“put on a tight t-shirt and we will scan in your body to make exact sizing measurements”
A little creepy? A hint of a salacious “peeping Alexa”? Maybe, but I predict the public will get used to it and come to rely on it. And this is just the beginning. Amazon is also offering and or planning to offer all kinds of services on Echo including the ability to make phone calls and order everything you could ever think of at the mall. All this goes way beyond the often-touted trivial ability of personal assistants to turn on the lights in your house, heat up coffee or alert your dog you are coming home. And what a potential bonanza for Amazon which already knows so much about your spending habits. Now it will know more and will happily have Alexa serve as your search and buy engine. Just one look, that’s all it took.
In my opinion, AI-driven personal assistants will become ever more important in modern daily life. They will only get better and add more and more features. The big guys – Alphabet (GOOGL), Facebook(FB), Microsoft (MSFT), Apple (AAPL), and certainly in China Alibaba (BABA) and Tencent (700:HK)/JD.com(JD), also have or will have their own home personal assistant devices. This could be life and death for the big guys. A person’s home is her castle. If you get in the castle, you win.
- Are the phone companies threatened by Alexa and her rival assistants?
- What will the home personal assistant device typically look like (the “form factor” in tech talk)? For example, will it be the mobile phone, or a stand alone device like Echo or will it be the good old PC? Or will one of the companies, maybe Apple, invent yet a new gadget for this purpose that every consumer will have to have? Will the right form factor be the key to success in this battle of personal assistants?
- Will the personal assistants disrupt Google’s search? Right now Alexa can select your store and take you right into the fitting room.
- How will virtual reality be integrated into this world of personal assistants? Imagine watching yourself try on clothes in a virtual world. You will never go back to the mall.
- Will the American companies integrate payment directly into their shopping experience directly the way the Chinese companies have? In other words, cut out the credit card companies? Tencent has Tenpay and Alibaba has Alipay. The Chinese tech companies have become huge financial institutions in their own right.
- Will the Chinese government because of its usual control obsessions restrict personal assistants?
- Will the American tech companies be allowed into China to compete on the personal assistant level? So far they have been kept out of China and they apparently were left out of the just announced trade agreement with China. China is the one gaping hole in their global strategies. Frankly, for the American companies China looks like a lost cause even if they are allowed in. It’s just too late. Unless they can really jump ahead in technology.
Hands Off Semiconductors Mr. Secretary!
A disturbing report has appeared in the South China Morning Post and Reuters that US Commerce Secretary Wilbur Ross and his band of protectionist troglodytes are planning a so-called Section 232 investigation of China’s efforts to build a modern semiconductor industry. What Wilbur did for steel, he apparently wants to do for (to) semiconductors. The Semiconductor Industry Association (SIA), the industry’s principal trade group, has according to newspaper reports already announced its opposition.
Allow me to make four points:
- Virtually all observers would agree the American semiconductor industry is light years ahead of China’s and that it will take China years to catch up. And that’s in the unlikely case the American companies make no further progress at all. This is true in logic, memory, flash, patents, foundry capabilities and, including Taiwan and Korea, where a lot of American semis are actually manufactured, in engineering capabilities.
- Semiconductors and semiconductor manufacturer equipment constitute major American exports and China is a major importer.
- China has become the world’s second largest economy. Semiconductors are probably the key industry in building a modern, knowledge economy. So it is not unreasonable if someday Chinese semiconductor companies become an important factor in the global economy. But that day is far off. China can splash billions of government yuan at building semiconductor capacity but most of it from what I read is probably going to be wasted. The successful Chinese tech companies like Alibaba and Tencent are private sector enterprises, not dependent on government handouts. Ironically, they rely on American semiconductor chips. They will be set back globally if they are forced to buy substandard Chinese state built semiconductors. They should ask Wilbur Ross to help them!
- The American semiconductor industry has thrived on global competition, the availability of global markets and, by and large, no government help. The last thing it needs is protection. If Secretary Ross wants to help the US industry, he should persuade Mr. Trump to open the immigration floodgates to the best and the brightest from other countries.