Recruitment and customer experience are the only part of the business services sector that are likely to take much of a hit from generative artificial intelligence (AI) like ChatGPT, according to JPMorgan.
Adoption Generative AI is booming, analysts at the investment bank pointed out, with ChatGPT growing its user base to more than 100mln since its launch in November 2022, the fastest consumer adoption ever seen.
Investors have alternately been excited by AI’s potential opportunities for some stocks – see NVIDIA, Microsoft, Alphabet and others – and been worried about the risks around its seemingly exponential development.
Looking at the impact on the business services sector, staffing companies were seen to be in the firing line.
Although the majority of staffing revenue is industrial or ‘blue-collar’, there is still significant exposure to more white-collar jobs like administrative, secretarial and IT at around 25% of group revenue, the analysts said.
“Although office exposure has already been under pressure in the past, we believe it’s still an area that investors are likely to increasingly focus on.”
They added: “In terms of AI being used by staffing companies to reduce cost to serve, this is an opportunity, although historically the Staffers have not seen significant margin improvements from technology given the industry remains competitive, with low barriers to entry.”
Across the rest of the business services sector the impacts are seen as less significant.
Experian (LSE:EXPN) PLC, for one example, has been flagged as potentially having AI risk, but the analysts see "limited impacts" as the core credit bureau data is highly regulated and largely non-public data, while Rentokil Initial PLC (LSE:RTO) is "largely not exposed to AI", with "limited impacts" also in distribution, such as DCC PLC (LSE:DCC), Bunzl PLC (LSE:BNZL), RS Group PLC (LSE:RS1) and Diploma PLC.
In the technology, media and telecoms (TMT) space, the analysts said in a note last week that the “offers plenty of opportunity for the sector to improve the consumer experience materially - and eventually boost sales together with better distribution processes”.
Potential risks were noted for companies that generate a share of revenue from Google search traffic, such as publisher Future PLC (LSE:FUTR).
Elsewhere in media, information service providers such as RELX PLC (LSE:REL) and Workiva Inc and ad agencies like WPP PLC (LSE:WPP) and Publicis as “’AI enablers’ that are well placed to unlock the benefits of AI for their customers”.
Longer-term risks around AI music “could be alleviated” in the coming months if digital service providers and governments bring in laws protect human artistry.
If AI brings about faster digitalisation it should benefit companies like SAP as they migrate customers into cloud environments, the analysts suggested.
“For IT services, we expect a mix shift, with more scope for automation in certain routine based and repeatable workflows and new demand emerges as new tech is democratised (as we saw cloud services emerge as cloud was adopted).”
Datacenters for AI see a link to Infineon as well as semiconductor companies such as ASML Holding NV (NASDAQ:ASML), ASM International and Valiant, which are seen as benefiting “more” as AI server capacity is built.
Alphawave Semi, the smallest semiconductor company in the coverage, “has the highest exposure and thus will potentially benefit most: all its IP and chips are datacenter exposed”, though there are risks including that it is a young company.