The Latest on AI

We have posted in the past on the status of artificial intelligence (AI). We will likely do so from time to time in the future. Frankly, the activities in AI are moving so fast and so wide that it is difficult to keep up with. The uses for AI are suddenly looking to be endless. Of course, businesses are always looking for an edge, so it is not surprising that they are leading the way in implementation. However, they are no longer alone in this 21st century gold rush. Just about every sector is finding AI extremely useful in accomplishing its mission.

No doubt we have all heard about the technological advances from the space program. The NASA website, in a periodic online publication called “NASA Tech Briefs,” documents more than 2,000 technologies over time. And these advances have been without the aid of AI. Imagine what that number will be in the AI world?  It will no doubt be in the thousands, and my guess is that they will evolve in a much shorter time frame than those from the space program.

An article from NACVA’s Quick Read¹ outlines some of the opportunities already popping up in businesses using AI. The article does point out (and I agree) that leaders and executives who step out of their comfort zone will be the ones to reap the benefits. A majority seem very willing to do so. As noted in the article, Thomas Edison famously said, “I have not failed. I just found 10,000 ways that won’t work.”

Here are some bullet points from the article that point to the current state of AI in business sectors:

• Fraud detection and risk management;
• Operational efficiency;
• Personalized services;
• Financial analysis and insights; and
• Inventory management.

The article goes on to point out potential consequences of these advancements:

• Job displacement;
• Data privacy concerns; and
• “Black box” issue (i.e., understanding how AI has made its decisions).

The article further points out that “in the face of AI’s rapid development it is essential for businesses to adopt strategies that not only leverage the advantages of AI but also maintain a balanced relationship with human expertise.” This is a key point to what the future holds in an AI world. Humans and AI must work together in balance with each other. Sounds like a science fiction movie, doesn’t it? Well it might not be a movie, but it certainly speaks to our future.

Business will certainly lead the way in an AI world because profit is a powerful motivator! Yes, a democratic and free economy still tops any other system. It is a system that we as business valuators work in and must understand. So it is important that we know what the businesses we are valuing are doing with AI and what the impact is on their value. As important is to know what the impact on the value of businesses that do not keep up with AI advances will be. (Hint: They will likely not be as valuable as AI adopters, and their existence might be in doubt.)

I mentioned that business is not the only sector where AI is already having an impact. Science is certainly another leader in the use of AI. Just as what happened in the science of the space program, science can show us ways to use AI that carry over to business.

Take, for example, the use of Monte Carlo simulations (MCS). I happen to be a fan of MCS especially in their use for forecasts and projections and in valuation. Symmetry, an online magazine from Fermilab, has a recent article titled “Will AI Make MC the MVP of Particle Physics?”² Noting that MCS are used to repeat experiments over and over, MCS are governed by randomness and chance. The article points out that “[p]article physicists use Monte Carlo simulations to design new experiments, to plan the construction of equipment, and to predict how that equipment will perform.” Those of us who have used MCS in valuations can perhaps expand our use of this tool by taking the experience of the physicists at Fermilab.  They point out that the accuracy of MCS has improved so much and are so much more powerful than in the past “thanks to the support of machine learning.” 

The advance from the Fermilab use of MCS relates to the breadth and speed that the physicists use. The deeper and faster the MCS models are, the more realistic the results are. This is a leap in reliability that I believe will make MCS more useful in the valuation arena. Providing MCS that are more like what the real results are likely to be will, in my opinion, raise the value of the MCS models to a level of reliability that could exceed other methods that are normal today, such as a DCF model.

AI continues along an ever-widening path that impacts our lives more every day. Where this will all lead is yet to be seen.

¹ quickreadbuzz.com/2023/06/14/litigation-eric-kreutuer-ai-odyssey-beyond-the-hype.

² symmetrymagazine.org/article/will-ai-make-mc-the-mvp-of-particle-physics.