Moody's: Transformative potential of artificial intelligence still years away, despite rapid recent growth

While AI technologies have advanced meaningfully in recent years, with a broad base of real-world applications across sectors, the most transformative uses are still in early development.

Drivers of recent progress include increases in computing power, large and growing datasets and improvements in underlying algorithms, which reflect growing focus among the public and private sectors as well as academia.

In the near term, Moody's sees most benefits deriving from efficiency enhancement, with applications helping firms to cut costs through automating tasks, improving capital allocation and better aligning product offerings with customer needs. However, the largest technology companies, such as Alphabet Inc. (Aa2 stable), Amazon.com Inc. (Baa1 positive) and Microsoft Corporation (Aaa stable), do account for a dominant share of the recent increase in AI investment and are building commanding positions in the development and monetization of the range of technologies that make up AI.

"These companies have the potential to capture an outsized share of the value that AI can generate," says Robard Williams, a senior vice president at Moody's. "That dynamic will have a significant impact on how various product markets evolve and how competition is shaped."

The report provides a snapshot of how AI applications are already developing in four sectors: auto, manufacturing, retail and financial services.

"The degree to which AI applications affect competitive dynamics will clearly vary by sector and over time," says Vincent Gusdorf, vice president. "From autos, where autonomous driving is a key contributor to a meaningful, if long-fused, transformation of the entire industry, to retail, where already tight margins mean much of the benefits of AI-driven cost savings could be passed on to consumers, we see the technology having a range of credit impacts."

Moody's points out specific benefits, such as boosting productivity, automating routine tasks and reducing error rates. The report also notes other implications, such as displacing some types of human labor.

While the report notes that AI has the potential to strengthen firms' creditworthiness, much depends on the financial resources firms have available to invest in the technology as well as their underlying strategic vision, given both the expense and potential organizational and business model implications of applying the technology.

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