The 2024 Gen.Ai Xmas Special, Incl 2025 Outlook

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A Christmas special with a deep dive into why Generative AI remains a growing tour de force for both enterprises, consumers, economies and investors. What’s in store for 2025?

-Gen.Ai Robotics are big business
-Extracting productivity gains might come more slowly
-Investing in Gen.Ai is not an “if” but a “when” for companies
-Big Tech embracing sustainable goals
-Goodman Group boosts shareholder value
-Microsoft adds AI value to Suncorp

By Danielle Ecuyer

“The approaching year is sure to come with its own well-choreographed drama. Like the falling snow in Finnish December, markets are certain to descend from lofty heights at some point next year. And when they do, the pundits –the GenAI skeptics– will flare up, emboldened by any dip, to parade their arguments adjusted for the developments they may not have expected so far.

These proclamations, which will echo the halls of digital media during the bear phases, will revolve around the theme that GenAI is nothing but a bubble ready to burst. Fundamentally, they will revolve around perceived capability lacks, insufficient use cases, overzealous investment, stagnating model improvements, or perhaps the ever-controversial valuations.

While such articles are as inevitable as the holiday season, those harboring doubts might find engaging with the quiz below prudent. It might just offer a moment of reflection. During some future moments of dread, these questions may help settle at least one doubt: GenAI is not a hoax. It has enormous use cases and staggering utility.”

Nilesh Jisani, Founder GenInnov Global Innovation Fund dishes the sceptics with his Christmas GenAi Quiz, available at https://www.geninnov.ai/blog/bah-humbug-a-christmas-quiz-for-the-genai-skeptics.  

Suffice to say as at late 2024 large language models are part of countless apps and platforms which makes estimates of the number of users difficult but is currently placed at nearing or over one billion.

The future is AI robotics

Robotics is not new, but AI-enhanced robotics has the potential to change the world, according to Citi. Cutting across a swathe of end users, robots have a role in autonomous vehicles, domestic cleaning, drones, humanoids, food service, caring, food and grocery deliveries, and labour substitution in manufacturing.

Citi estimates four billion AI-robots will be in operation by 2050. In the robotic vacuum cleaner market, Euromonitor highlights the market has grown at a compound annual growth rate of 13% between 2018-2023, reaching US$7bn in value in 2023 from US$3.8bn in 2018.

Citi cites forecasts from four independent sources suggesting the market size will grow to US$24.8bn by 2030, a 22% annual compound growth rate from 2023. Autonomous vehicles are identified as one of the largest potential markets for AI robotics. Citi’s research forecasts global level 3 and above autonomous vehicles will rise to around 380m in 2035 from 27m in 2024 and to 1.9bn by 2050.

Staggering the technology, there are five levels of vehicle automation, from level zero (no automation) to level five (full automation). Levels one and two, which many cars possess, include adaptive cruise control, lane departure alerts, or collision warnings. Level three allows autonomous driving with human intervention at the ready, while level four enables full automation without a steering wheel or pedals.

Under level three, including Tesla’s self-driving offering, 70m miles of autonomous driving on US roads occurred in 2024, a 59% rise from July 2023. Waymo has driven over 25m miles and has been authorised to drive without a driver in San Francisco since August 2023. The company achieves 100,000 rides per week. Citi anticipates 1.8bn autonomous vehicles by 2050.

Humanoids are highlighted as one of the newest robotic developments. Tesla is reportedly using humanoid robots in its factories to change light bulbs, according to a fund manager who observed the robots in action. Manufacturing and warehouses are environments where humanoid robots hold the most promise, followed by households and commercial premises for cleaning.

AI-enhanced robots can take on increasingly complex tasks and environments with autonomous decision-making capabilities.

“The rapid development in humanoid robotics hardware will undoubtedly continue at pace, though it is unclear how far these systems will progress beyond basic capabilities such as locomotion and pick-and-place tasks. Endowing large, pre-trained models with explicit reasoning ability remains a frontier in AI and will unlock broader deployment of robotics where agents act and interact in the physical world.”

The above quote is froim Ingmar Posner, Professor of Applied Artificial Intelligence, Department of Engineering Science, Oxford University.

Citi draws multiple conclusions on AI robotics. The pace and rate of change in some markets, such as cleaning, are accelerating. Others, like autonomous vehicles, are positioned at the bottom of the S-curve. Time-saving robots are likely to be embraced by humans for various functions, including cleaning, caring, and personal assistance.

Businesses and government departments, like defense, are also expected to adopt robotics to address staff shortages, enhance supply chains, and bolster intelligent defense capabilities amid rising geopolitical risks.

Citi estimates the total addressable market for humanoid robots could reach US$7trn, with capital readily flowing into these markets. China is a leader in industrial robot installations, innovation patents, and price reductions. Robots are also expected to exert deflationary effects on wages and interest rates.

The broker concludes AI robots have the potential to create new roles, augment existing ones, or substitute them.

“Given significant change lies ahead, AI robots will not wait for workers to catch up.”  

Quote from Citi’s report The Rise of AI Robots. Physical AI is Coming for You.

Benefits of Gen.Ai remain in question

Shaw and Partners took a deep dive into “AI and its potential impact on productivity and economic growth”.

Historically, productivity improvements were driven by manufacturing, where innovative technological applications provided tangible benefits, such as fewer people producing the same output. However, productivity gains in services have been harder to achieve due to the labour-intensive nature of the work. AI has the potential to boost productivity in service markets, though the broker notes insufficient data to ascertain current impacts.

Shaw highlights more than half the slowdown in global GDP growth stems from declining productivity when comparing 1955-2005 with 2006-2019 in the US. This was exacerbated by declining labour force participation and slower growth in the working-age population.

In conclusion, Shaw observes AI has the potential to offset demographic headwinds to GDP growth by increasing productivity. The broker sees promising potential impacts in the services sector, differing from historical productivity advancements in technology.

However, the broker notes the outcome remains “somewhat intangible,” concluding AI is likely to represent an evolution for productivity and GDP growth rather than a revolution.

Companies must invest in Gen.Ai to stay relevant

RBC Capital sees generative AI as an imperative for companies to remain competitive in the long term.

While margins may be impacted in the short term due to investment costs, the broker believes the jury is out on whether implementation will result in margin growth, likening it to the “debatable” savings from cloud adoption.

The broker envisions Gen.Ai boosting internal processes such as product development and enhancing operational efficiency. RBC describes Gen.AI as a “highly data-consumptive artificial intelligence technology” capable of producing various content types, including text, images, audio, and synthetic data.

AI models are trained using thousands of GPUs in data centres, which consume significant amounts of electricity. This has implications across industries, including software, internet, semiconductors, real estate, industrial equipment, data centres, bandwidth providers, utilities, and energy providers.

RBC observes cloud sales from hyperscalers continue to reflect momentum, with capacity constraints limiting demand, as noted in recent quarterly earnings calls. Microsoft cited power and data centre supply constraints, while Google Cloud mentioned agreements to adopt small modular reactor power.

Capital expenditure by hyperscalers remains robust, with increases anticipated in 2025 for cloud, AI, and addressing capacity constraints. One of the key factors for Gen.Ai is compute efficiency as AI models scale and transition from training to inference.

“Inference Phase: Once the model is trained, it enters the inference phase, where it applies what it has learned to new data inputs to generate outputs. This could be anything from classifying images, predicting stock prices, translating languages, or generating text”, Microsoft Co-Pilot explains.

RBC details sector implications for monetising AI, highlighting accelerated revenue growth for software companies, improved developer productivity, reduced app development costs, enhanced security needs for Gen.Ai, increased creativity, improved sales and marketing outcomes, and better enterprise contact centre outputs.

Data centre operators and utilities are facilitating the energy needs for Gen.Ai compute. RBC explains the substantial demand increase is driven by AI workloads, leading to rising demand for liquid cooling systems for “high-density” compute.

Major US data centre operators like Equinix are investing -US$15bn as part of a joint venture to expand AI capacity for hyperscalers. NextDC ((NXT)) is also seeing increasing demand from cloud and AI sectors, shifting to “build-to-suit” models for these industries.

Investment in data centres and digital infrastructure has become the asset class of choice for major asset managers like Ares, Blackstone, and Blackrock; all are acquiring platforms and scaling operations.

Technology companies embracing sustainability

S&P Global’s Market Intelligence highlights key takeaways from US and European technology earnings calls over the last eight years, noting a shift in management priorities toward sustainability. Data centres, which consume large amounts of energy, are becoming a focal point as companies align sustainability goals with business objectives.

The number of sustainability mentions in tech earnings calls has risen significantly, increasing 60% in 4Q 2019 after the UN Climate Action Summit and reaching 80% by 4Q 2021 post-COP26. European companies tend to focus on regulatory compliance, while US firms prioritise innovation, profitability, and customer loyalty.

S&P sees an intersection between growth, innovation, and sustainability as companies pursue low-carbon solutions and ambitious decarbonisation targets, while also securing increased energy supply.

Goodman set to extract earnings value

Barrenjoey highlights the strategic re-direction of Goodman Group ((GMG)) towards data centre development alongside moving up the value chain, indicating a convergence of its earnings model with pure play NextDC’s model.

Management at Goodman aims to increase its data centre pipeline while retaining developments as operating assets, which is expected to materially lift earnings. The broker estimates Goodman’s data centre pipeline at $245m, up from $125m, with around 50% retained as economic interests or delivering 60% of its 7.5GW power bank as operating assets.

Barrenjoey notes the shift away from traditional core, shell, and turnkey projects under real estate leases allows Goodman to attract a “deeper pool” of tenants. The analyst forecasts data centre work in progress will rise to 80% from 42% of the total pipeline, with development backlogs taking 17 years to complete due to the scale and lead times of the sites.

Goodman’s annual production is expected to grow to above $10bn by FY28 from $6.5bn currently. Data centre revenue from operating assets is anticipated to be three to four times higher than traditional development, with pricing of US$100kUS$200k per KW per month.

Through-the-cycle gross margins are forecast at 80%.

Barrenjoey has this week upgraded Goodman Group to a Buy-equivalent rating from Sell-equivalent and raised its target price to $41 from $35.

Suncorp grabs the Microsoft AI bulls by the horns

“Having established the right foundations through cloud migration, engineering excellence, digitisation and automation, we are now working together to safely deploy GenAI as scale and transform our end-to-end operations”,
Suncorp’s CIO Adam Bennett stated this week.

Microsoft and Suncorp Group ((SUN)) announced the extension of an existing agreement for another five years to advance the integration of AI at scale across Suncorp’s operations. The deal includes the addition of Azure OpenAI and Microsoft 365 Copilot to enhance efficiency in processing claims for customers and improve everyday work processes for employees.

Having experimented with large language models before ChatGPT was widely released, Suncorp is now actively investigating 120 AI use cases, of which twenty will be implemented in FY25.

The (now) pure play insurer highlighted the use of Azure OpenAI services for generating a unified view of a claim, reducing the time per claim and saving between five and thirty minutes per claim review, depending on case complexity.

Tech and Gen AI Christmas goodies for 2025 

Technology specialist and investment bull Dan Ives sows the seeds of further upside for 2025 with the Wedbush Top 10 Christmas List for the Tech sector in 2025.

Against a backdrop of a changing regulatory environment and a more business-friendly Trump administration, Ives points to an expected 50% increase in M&A activity in the tech sector, including the publicly listed space, with Lina Khan leaving the FTC regulatory body. Activity across software, cybersecurity, AI infrastructure, and consumer tech is anticipated.

Under a base case, US tech stocks are expected to rise another 25%, driven by the AI revolution and the second/third derivatives of the “tidal wave of tech spending” and AI capex.

Apple is anticipated to become the first US$4trn market cap stock as the iPhone 16 brings the AI revolution to the company and to consumers, delivering a new super cycle for the company. Apple is expected to ship more than 240m iPhones in 2025, setting an annual record.

Ives also flags Nvidia and Microsoft will follow Apple into the exclusive US$4trn club as the AI revolution enters its next growth phase.

A pathway to AI capex of US$1trn in 2025 is described as probable with the “next wave of use cases and software buildout across the consumer and enterprise landscape.”

Tesla is expected to achieve a US$2trn market cap by the end of 2025, with the autonomous story ascribed a US$1trn value. The Tesla narrative depends on full self-driving, autonomous vehicles, and the launch of Cybercab in early 2026.

Antitrust headwinds should ease, and concerns over structural changes to Big Tech might not be as severe as previously flagged.

Cybersecurity is expected to continue as a “robust sub-sector” and could grow by 30% over the next year, supported by an acceleration in cloud and AI growth, as well as M&A.

Top-performing Palantir is expected to become the next Oracle and continues to be considered the most “underappreciated” tech stock.

Lastly, Elon Musk is expected to play a significant role in the China tariff talks in 2025, with Apple, Tesla, and Nvidia likely to achieve “carve-outs in this game of high-stakes poker between DC and Beijing.”

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