Levene says around $30bn (£23bn) globally was invested into AI-themed companies in 2023, occurring at a time when investments into other early stage technology companies were cut.
Disrupting the big players?
But while he notes we are in the teeth of a hype cycle around AI, he says one factor that is different this time is that both venture capital funds and what he calls “strategic” investors – by which he means very large technology companies such as Meta and Alphabet – have also been investing in AI.
He says: “If you look at the levels of capital being raised, it is as though we are back to 2021 when all of tech was able to raise capital. But now it is concentrated in AI, and the thing that is driving it is the investments by the big technology companies.
"For them, it is to a large extent a defensive move, Alphabet (the parent company of Google) are worried about the impact of AI on their search engine business, and for that reason an 'arms race' has developed in terms of AI funding and it’s a race Google cannot afford to lose.”
Levene's view is that the first wave of AI innovation involved “the ability to give customers a better experience, but the next phase will be about reducing costs.”
James Dowey, who runs the Liontrust Global Technology fund, says that while Google’s investment in AI businesses may be regarded as defensive, for many of the other large technology companies piling cash into AI, "they see it as an opportunity rather than a threat".
"The thing with technology is it moves in cycles, we had the internet, and then smart phones and then the cloud. And each of those were standing on the shoulders of giants in terms of building on what went before. And that is what’s happening now with AI."
Dowey adds: "I think of AI as developing in three ways; the first is infrastructure, then you have AI models and finally the applications. There are many well-established companies in each of those areas, companies such as Netflix and AirBnB are beneficiaries of these trends."
Levene’s fund is focused specifically on financial technology investments, and he says this is one area the waves of capital seeking exposure to AI have yet to penetrate.
He has been generally sceptical about the merits of investing in AI in his particular part of the market as he feels many of the opportunities are too early stage, "and we feel we need to be able to understand a company before we can invest in it".
