Page 6 - FWP Wealth Adviser Newsletter - February 2025

ISSUE 105
FEBRUARY 2025

The rise of AI in finance also raises questions about market fairness and
accessibility. As sophisticated AI tools become more prevalent, there’s a

risk of creating a two-tiered market where AI-equipped investors have a
significant advantage over traditional investors. This could potentially lead
to increased market concentration and reduced liquidity in certain sectors.

Market Shockwaves: From DeepSeek to Data AI capabilities, particularly in navigating complex market
Centre Demands conditions.
The AI revolution is not just a matter of software; it’s The integration of AI in finance is not without its risks.
driving massive changes in hardware infrastructure as well. Firstlinks cautions that “Current chip shortages expose 34%
According to analysis from Firstlinks, “The AI arms race is of AI funds to supply chain vulnerabilities”. This highlights
creating $200B+ infrastructure investment gaps by 2027”. the interconnected nature of the AI ecosystem and the
This staggering figure underscores the scale of physical potential for technological bottlenecks to have wide-ranging
infrastructure required to support the computational financial impacts.
demands of advanced AI systems. A study by the Cambridge Centre for Alternative Finance
The recent breakthrough by DeepSeek, a Chinese AI com- has shown that AI-driven trading algorithms can sometimes
pany, in developing a large language model that rivals those exacerbate market volatility, particularly during periods of
of US tech giants, has sent shockwaves through the market. stress. This presents a challenge for regulators and market
This development not only intensifies the US-China AI participants alike, as they seek to harness the efficiency of
rivalry but also highlights the global nature of AI innovation AI while maintaining market stability.
and the potential for disruption from unexpected quarters. The rise of AI in finance also raises questions about
However, AMP Capital warns that “Early-stage adoption market fairness and accessibility. As sophisticated AI
creates volatile ‘expectation bubbles’ across tech valua- tools become more prevalent, there’s a risk of creating a
tions”. This volatility is evident in the rapid fluctuations of two-tiered market where AI-equipped investors have a
AI-related stocks and the sometimes speculative nature of significant advantage over traditional investors. This could
investments in AI startups. Investors must be cautious of potentially lead to increased market concentration and
overvaluation in the sector, even as they seek to capitalise reduced liquidity in certain sectors.
on its potential.
The infrastructure demands of AI extend beyond just Workforce Resilience: Adapting Skills for the
computing power. Data centres, the physical backbone Augmented Era
of the digital economy, are facing unprecedented growth The impact of AI on the workforce is a topic of intense de-
pressures. The need for specialised chips, increased power bate and speculation. AMP’s labour market analysis suggests
capacity, and advanced cooling systems is creating bottle- that “73% of finance roles will hybridise with AI tools within
necks in the supply chain and driving up costs. 5 years”. This transformation will require a significant shift in
McKinsey’s analysis suggests that AI could potentially skills and job roles, with a greater emphasis on data interpre-
boost global GDP by 4.4%, but this comes with significant tation, strategic decision-making, and AI oversight.
implementation costs. The challenge for businesses and However, the AI revolution is not just about white-collar
policymakers is to balance the investment required for AI jobs. Firstlinks’ infrastructure insight reveals that “Data
adoption with the potential returns, all while navigating an centre construction requires 58% more skilled electricians
uncertain regulatory landscape. than previously forecast”. This highlights the diverse range
of job opportunities created by the AI boom, spanning from
Financial Foresight: Preserving Wealth in high-tech roles to skilled trades.
Algorithmic Markets The World Economic Forum’s 2024 Future of Jobs Report
As AI systems become more prevalent in financial mar- predicts that while AI will displace some jobs, it will also
kets, the nature of investment strategies is evolving. Russell create new roles and enhance productivity in others. The
Investments reports that “Human-AI teams outperformed key challenge for workers and organisations will be to
pure algorithms by 17% in 2023 stress tests”. This finding adapt quickly to these changes, with a focus on continuous
underscores the value of combining human insight with learning and skill development.

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