Visa is a downstream AI applier trying to make a buck
I was blown away when I first heard the most popular use case for generative artificial intelligence (AI) in 2024, is a chatbot called a companion bot. Romantic AI is one example of a company providing AI girlfriends or AI partners powered by algorithms designed to interact with users on an intimate level. Other examples include Character AI, whose founders are now at Google (NASDAQ:GOOG), whose technology lets users chat and role-play with real-life or fictional characters, including Queen Elizabeth and Draco Malfoy (of Harry Potter fame), or create customized AI companions.
If that’s all that ever comes from large language models, then the whole AI boom will bust any moment. Also pointing to the limited upside for the current boom, many CEOs and boards are now demanding tangible and measurable returns for their AI spend.
On the other hand, a tidal wave of development is still producing a tsunami of headlines about other use cases, and it will be these that ultimately decide which phase of the AI boom we are in.
For those just tuning into the blog, it’s important to understand that the rollout of AI is not a unique event. Investors might benefit by thinking of it much like the rollout of any other technology of the past. Most benefits will accrue to the consumer and fewer to shareholders. That’s because, at the beginning of a wave of new technology, investors make bets that, in aggregate, look like all players win. They don’t. While the AI landscape is probably not a winner-take-all environment, there will only be a few big winners.
If Nvidia (NASDAQ:NVDA) represents the first phase of the AI trade, phase 2 will be about other companies that are helping to build AI-related infrastructure. Expect to see lots of takeovers, acquisitions and founders and CEOs moving between entities in the second phase. Phase 3 deals with companies incorporating AI into their products to boost revenue, while phase 4 is about the AI-related productivity gains that should be possible across many businesses. This last phase takes many years and is barely noticeable as an AI investment phase, looking instead like the AI ‘Era’. It’s also worth noting these phases aren’t distinct periods but overlap and, for a time, appear to coexist.
With phase three in mind, I was particularly excited to read about how early implementor Visa (NYSE:V) is applying AI into its business, processes and offerings. Visa’s share price is up 14 per cent since July, up 19 per cent over a year and up 61 per cent over five years.
In Visa’s case, the company is pushing its staff to develop AI applications and use cases quickly to harness the technology’s benefits and stay ahead of evolving fraud methods. According to Visa’s President of Technology, Rajat Taneja, the company has already deployed over 500 generative AI applications.
Visa’s AI deployments cover a wide range of applications including security enhancement tools that detect bugs in code to strengthen cybersecurity measures, Customer service chatbots acting as subject matter experts in various business areas, and user experience systems allowing subscribers to customize the timing of their billing cycles.
Over the past decade (yes, decade!), Visa has invested US$3.3 billion in AI and data infrastructure, demonstrating a long-term commitment to integrating advanced technologies into its operations.
Visa’s aggressive approach contrasts with the broader industry trend where companies are becoming more cautious about AI investments.
Complicating the increasing capex narrative is the news that Visa plans to lay off approximately 1,400 employees and contractors by the end of the year, with around 1,000 positions being technology roles. The company explained that it continually evolves to better serve clients and support growth, which can lead to the elimination of certain roles.
Visa envisions a future where AI-generated digital employees work alongside human staff. In this model, each human employee could oversee eight to ten AI “employees,” delegating a variety of tasks to these digital assistants. This approach aims to amplify human productivity and foster innovation through enhanced collaboration between people and AI systems.
Despite the obvious and initial cost savings, Visa’s board may have a tough time quantifying the benefits of its AI implementation. While we can measure the amount of fraudulent activity prevented after implementing AI tools targeting enumeration attacks, assessing the value of productivity-enhancing or consumer experience tools is more subjective.
As I noted earlier, the lion’s share of the benefits of new technology often accrue to the consumer. Just think of automobiles, commercial air travel and the television; these technologies all changed the course of human history and yet none were collectively wildly profitable for their investors.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
