Even though artificial intelligence (AI)—the ability of machines to perform tasks with human-like intelligence—is a product of the information technology sector, many of the key applications to date are in industrials. Essentially, any process that can be automated can potentially be improved with AI, and many of the most promising applications are found in a variety of manufacturing environments. Whether the product is a medical device, a toy, smart lighting, or aircraft engines, the goal is to produce more and better-quality products at a lower cost, with shorter downtimes.
These benefits can be obtained through the use of "smart" equipment that can monitor data about production processes and make adjustments in real time. The Internet of Things, improved software and algorithms, data analytics, and advanced electronics all have contributed to AI's usefulness. AI now has the ability to perform in unstructured environments, and the "intelligence" to learn and operate autonomously. Thus, we see increasingly widespread use of industrial robots—that is, physical robots that execute tasks in manufacturing, agriculture, construction, and similar industries with heavy, industrial-scale workloads. Some industries, such as auto manufacturing, have used robots for years but have only scratched the surface of the potential for AI-equipped robots (see chart).
Similarly, in the water and electrical industries, hardware manufacturers are expanding their offerings of software-enabled products, as municipalities increasingly look to replace their existing infrastructure with solutions that leverage sensors and internet communication. "Smart" networks, data, and analytics could enable towns and cities to benefit from greater energy efficiency, reduced costs, and real-time monitoring.
Manufacturers of home and office environmental-control equipment are following a similar path. In "smart" houses, heating and cooling systems will use predictive analytics—the use of new and historical information to forecast future activity, behavior, and trends—to anticipate what temperature and humidity users prefer in specific circumstances.
While the adoption of AI remains in its infancy, areas that have high and fast return on investments such as lighting, robots, and energy efficiency are experiencing rapid growth and are high-conviction areas for investment today. I think AI represents a potential long-term growth driver for the sector, where its presence and significance will widen significantly in the medium term.
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Tobias Welo is a portfolio manager and research analyst for Fidelity Investments. Mr. Welo, who joined Fidelity in 2005, is responsible for managing multiple portfolios focused on the industrials and materials sectors. He also serves as sector leader for the industrials and materials sectors.
Fidelity Associate Analyst Eric Thompson also contributed to this report. Fidelity Thought Leadership Vice President Vic Tulli, CFA, provided editorial direction.
Fidelity Senior Sector Specialist Eadaoin Snee and Associate Analyst Eric Thompson also contributed to this report. Fidelity Thought Leadership Vice President Vic Tulli, CFA, provided editorial direction.
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Views expressed are as of Dec. 1, 2016, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
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