Not intended for distribution outside of Canada.
Certain of the products and services offered under the brand name BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations.
This communication is intended for informational purposes only and is not, and should not be construed as, investment, legal or tax advice to any individual. Particular investments and/or trading strategies should be evaluated relative to each individual’s circumstances. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Past performance does not guarantee future results.
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
Commissions, trailing commissions (if applicable), management fees and expenses all may be associated with mutual fund investments. Please read the fund facts or prospectus before investing. BMO Money Market Fund is not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the Fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Past performance may not be repeated.
For a summary of the risks of an investment in BMO Mutual Funds, please see the specific risks set out in the prospectus.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
®/™ Registered trademarks/trademark of Bank of Montreal, used under licence.
War of the Words – The Battle for AI Language Supremacy
Malcolm White, CFA
Portfolio Manager (Technology and Communications), Global Equity
Jeremy Yeung, CFA
Portfolio Manager (Technology and Communications), Global Equity
As AI applications begin to show near-human abilities, a battle is erupting between technology giants to show who will be the first to integrate these technologies into their existing infrastructure. The stakes are incredibly high as seen with the massive market capitalization moves seen as technology bellwethers Microsoft and Google show early concepts of their new search platforms.
We asked Malcolm White, BMO Global Innovators Fund’s Portfolio Manager, to provide his unique insights given that he has been studying AI for over six years now and has personally used many of these next-generation language tools for industry applications. He comments on the underlying innovations but more importantly why a myopic view of ChatGPT solely as a search technology misses the more important investment ramifications.
Figure 1 – AI Boxers Drawn by Author Using Generative AI via Stable Diffusion
(Source: Author, generating using NightCafe)
This is What We Were Talking About
We made some bold statements last October that 1) new generative AI applications were excellent 2) they were ready for commercialization and 3) and we believed that these AI-based applications can be the foundation of the next industrial revolution. We backed these claims up by showing amazing images generated by AI (just like the graphic under our introduction – Figure 1) and by highlighting medical applications using AlphaFold that can predict protein structures. But we lacked that knockout application that would cement our points.
Then came ChatGPT.
This AI application took the world by a storm and became our holiday gift. It not only validated our key theses but it also validated another that we would not see the lost decade of innovation that occurred post the dot.com crisis. This was because we spent the last ten years building incredible infrastructure to deploy technology: data centres, cloud computing, and 5G wireless networking infrastructure. If a technology was worthy of capturing the world’s attention – it would do so in record time. ChatGPT certainly did this by achieving the incredible milestone of reaching 100 million monthly active users in only 2 months (see Figure 2); the popular Instagram in comparison took over 2 years to achieve the same milestone1.
Figure 2 – Time Required for an Application to Reach 100 Million Global Users (in Months)
Source: UBS / Yahoo, as of February 22, 2023
What is ChatGPT? Just ask ChatGPT
Can ChatGPT Get a Wharton MBA?
But for those who think that humans no longer have to think again, he notes ChatGPT:
So human intelligence is in no danger of being replaced as feared. Instead, our thesis is that AI applications such as ChatGPT are incredible productivity tools that will benefit the humans that adopt it. We call this process Cognitive Automation and believe it will power the next industrial revolution.
War of the Words - The Tech Titans Have Awoken
Given that ChatGPT has been the fastest technological adoption curve ever recorded (Figure 2), it is no surprise that it has caught the attention of the technology titans. Just as we had knowledge of these incredible capabilities of these new Large Language Models (LLM) such as ChatGPT, they too knew that the day would come when the public became aware of these applications.
However, a subtle error in the output from their chatbot powered by these models (Bard) triggered a crisis in confidence that triggered a wave of selling, erasing $100 billion in market capitalization for Google in one day (Feb 8, 2023).
It is easy to get caught up in the hype of this spectacle that we are calling the War of the Words. But if you don’t understand the underlying technology, it is also easy to get misled. Fortunately, we have been using AI-based natural language models for several years now including using Google’s advanced Natural Language Processing (NLP) model called BERT, GPT-3 and its successor ChatGPT. This has given us a unique and informed perspective on this battle.
Hype Alert - ChatGPT is Not a Search Engine
We first need to burst the bubble surrounding ChatGPT – it is not a search engine. Zealots may want to argue with us so we will back this up with an example. Ask ChatGPT – “Who won the Superbowl?” It will provide a very accurate description of how Kansas City won, provide detailed statistics about its quarterback, etc. But the problem is it will describe the win over the San Francisco 49ers and not the most recent win over Philadelphia Eagles. Why? OpenAI has fully disclosed the reason for the error – ChatGPT cannot process information after its last training date, which is 2021. Although this won’t affect tasks such as writing an essay on Shakespeare etc., a lack of knowledge of current events is one reason why using ChatGPT as a search engine could be problematic.
ChatGPT is the other side of the spectrum. It is a Natural Language Generation (NLG) tool. It has read nearly everything on the internet and stored it in its massive brain. This “brain” has 100s of billions of nodes in it called parameters that act like neurons in a human brain. This gives it near perfect memory of what it has read. When a user types in a request, ChatGPT will perform some rudimentary understanding of the request and then try to emulate what a response should look like from its memory. It tries to autocomplete a long sequence of words based on prior words. This gives it uncanny abilities to create what looks like a cooking recipe, movie script, computer code, academic essay etc., as it regurgitates what it remembers. But the drawback is that the response is a recreation of what you desire – it may or may not be accurate like our Superbowl example.
Figure 3- Natural Language Understanding Versus Generation
Cost is the Catch – These are Large Brains to Train
The good news is that the industry is developing amazing new language models that will delight consumers and businesses alike (and annoy teachers). The catch is the industry secret that while ChatGPT and other generative AI tools produce amazing results, they are very expensive to host. That is because the language models they serve are enormous and have grown orders of magnitude larger, as shown in the following graphic (Figure 4). This means that you must use much more advanced hardware to run these applications. The problem with that is that there is no free lunch – more advanced hardware comes at a much higher cost that will make it more challenging to monetize these AI-based applications. Vendors that give away popular services for free are likely losing large amounts of money in the short-term hosting these applications.
Figure 4- The Increase in Size of AI-based Natural Language Models
Source: https://towardsdatascience.com/gpt-3-the-new-mighty-language-model-from-openai-a74ff35346fc, as at February 22, 2023
To illustrate this, we have provided some pricing comparisons of current hardware used to run web services (e.g. CPUs) vs newer hardware (e.g. GPUs). We note pricing is still nascent and will vary by provider but what is important to note is the magnitude of pricing differentials. CPU-based inference is priced in pennies per hour; GPU-inference is priced in dollars per hour – nearly 100 times more. The pricing in Figure 5 – Comparative Pricing for Hosting AI Applications – CPU vs GPU even understates the gap as ideally for ChatGPT, one would use an NVIDIA A100 configuration or ideally an H100 configuration that could cost $8-$12 dollars per hour. This is much more expensive than the pennies per hour of compute cost that would typically power search or other basic text applications.
Figure 5 – Comparative Pricing for Hosting AI Applications – CPU vs GPU
CPU instances
GPU instances
Investment Ramifications
Google – Don’t write Google off. The saying in AI is that the one with the most data is the winner. Google has this and should easily be able to recover from their poor demo. Additionally, Google is well aware of the “catch” with AI, namely the cost of hosting these applications. That is why they developed their own in-house chips (TPUs) to lower the cost of training an AI application and serving it (inference). Even if Google is behind OpenAI they are likely the first to be able to provide a cost-effective solution.
Semiconductors – As mentioned with the “catch” – the world will need much more advanced computing capabilities to serve these models. Not to mention other cloud vendors, e.g. Amazon, that will be buying these chips and selling cloud-based hosted compute instances.
Conclusions - The Bing vs The Bard
So who will be the winner in the War of the Words (Bing vs Bard)? It is too early to call, and a simple debate misses the larger investment ramifications (see Investment Ramifications). We believe that in the future we will see hybrids of both models (NLU+NLP+NLG) doing what they do best. Ultimately, we believe this will come to market from both Google and Microsoft. This should be a very compelling offering. We also note that based on the roadmap for the next version of GPT (GPT-4), it could also better handle other types of information, such as images etc. Again this will provide other applications not currently available or known. We eagerly await the future of these technologies. We think the real winner of the War of the Words will be delighted consumers who use generative AI to achieve amazing results.
1 https://www.reuters.com/technology/chatgpt-sets-record-fastest-growing-user-base-analyst-note-2023-02-01/#:~:text=Feb%201%20(Reuters)%20%2D%20ChatGPT,a%20UBS%20study%20on%20Wednesday.
2 Response from ChatGPT. Source: https://platform.openai.com/playground
3 https://www.cnn.com/2023/01/26/tech/chatgpt-passes-exams/index.html
4 Christian Terwiesch, “Would Chat GPT Get a Wharton MBA? A Prediction Based on Its Performance in the Operations Management Course”, Mack Institute for Innovation Management at the Wharton School, University of Pennsylvania, 2023.
5It has more recently generated small snippets that answer commonly asked questions around your query
Disclosures
Not intended for distribution outside of Canada.
Certain of the products and services offered under the brand name BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations.
This communication is intended for informational purposes only and is not, and should not be construed as, investment, legal or tax advice to any individual. Particular investments and/or trading strategies should be evaluated relative to each individual’s circumstances. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Past performance does not guarantee future results.
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
Commissions, trailing commissions (if applicable), management fees and expenses all may be associated with mutual fund investments. Please read the fund facts or prospectus before investing. BMO Money Market Fund is not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the Fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Past performance may not be repeated.
For a summary of the risks of an investment in BMO Mutual Funds, please see the specific risks set out in the prospectus.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
®/™ Registered trademarks/trademark of Bank of Montreal, used under licence.
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