(Editor's Note: CreditWeek is a weekly research offering from S&P Global Ratings, providing actionable and forward-looking insights on emerging credit risks and exploring the questions that matter to markets today. Subscribe to receive a new edition every Thursday at: https://www.linkedin.com/newsletters/creditweek-7115686044951273472/)
While companies across sectors and industries have been using traditional artificial intelligence (AI) for years, we expect the adoption and impact of generative AI to increase exponentially in the years to come. AI-based technologies have not yet risen to the level of influence that leads to rating changes, but AI has been already cited as a credit factor in specific instances and has the potential to redefine the competitive landscape for almost every sector in the longer-term.
What We're Watching
In major economies including the U.S., Europe, and China AI-focused regulation is already in progress to foster fairness, information and privacy protection, and public safety. Unlike traditional AI, which relies on large datasets of labeled data to generate predictions, generative AI uses machine learning to generate new content. Without proper controls, the lack of transparency around the source material for output developed by generative AI poses risks to companies' intellectual property, employee and customer privacy, and reputation. This could yield a range of outcomes, which vary in severity, from managed risks, like the potential for lawsuits, to the marginalization of certain groups and existential risk vis-à-vis permanent reputational damage stemming from a lack of controls and governance. Nevertheless, the recent failed ouster of the OpenAI CEO is emblematic of the reality that the evolution of AI cannot be stopped. Local and national governments' focus has been on putting guardrails in place that maximize the benefits of AI and limit its downside without hindering the pace of its progress, and legislation and regulation continue to grow.
As companies accelerate their adoption and integration of generative AI, the disruption to workforces—especially those focused on the collection, analysis, and dissemination of information—will almost certainly intensify.
In the near term, AI-based technologies' promise to enhance complex inputs into simplified outputs will increase efficiency for corporates across a myriad of sectors. The immediate impact of AI will include the evolution of certain jobs in different industries, with concomitant effects, including those on economic productivity and sought-after skill sets, labor force participation, and technological competitiveness.
The way in which the legal landscape evolves around content ownership and renumeration requirements will play a part in determining the potential cost savings associated with implementing various AI use cases. A case can be made that this will be a rising tide that lifts all boats from a cost perspective. Under this scenario, even those companies that do not benefit directly would be able to source their inputs at a lower cost as some cost savings are passed on to the consumer. Further, the digitization, standardization, and normalization of content and data used in these cases may sow the seeds for transformative and regenerative impacts on labor, allowing for new processes and products that were not possible without the technology.
What We Think And Why
Large companies in developed economies with the superior spending power to match their enthusiasm will likely emerge as the winners of generative-AI use in the short-run, particularly since investment in traditional AI has been largely organic and bespoke and limited to organizations of that size. On the other hand, the modularization of the technologies through open-source means and application programming interfaces (APIs) like those produced by OpenAI, will invariably create scale and allow smaller to midsize companies with compelling business models to compete. Across the board, AI could further expand the fields and risks of competition for many companies, leaving those unable to adapt behind.
Parts of the technology industry that manufacture the hardware and software to support AI's backbone can be expected to see increasing opportunities as AI ramps up. From there, the pace of further growth will depend on the various applications of the technology that emerge.
Certainly, sectors dealing with the gathering and analysis of large amounts of information—such as health care (including diagnostics) and financial services—lend themselves to AI interventions and benefit from the scalability of the technology. Similarly, manufacturing and logistical operations will likely see a similar benefit, brought on by recent advancements in logistics and supply chain disruption globally.
Content providers in the media sector, whether in entertainment or publishing, also face a high likelihood of disruption. This was one of the concerns associated with the recently concluded actors' and writers' strikes.
Every company's approach to AI adoption will be determined by the risks and opportunities they face, which will determine the ultimate effect of this transformational technology.
What Could Go Wrong
As with most transformational technologies—from movable type to nuclear fission—the risks and rewards of generative AI lie less in the technology in isolation and more in its application. Used prudently, generative AI will boost productivity, enhance employee satisfaction, and fuel economic expansion. Implemented hastily, it could reinforce systemic biases (in industries such as insurance and financial services), sow skepticism, and (ironically) create unforeseen inefficiencies and imbalances.
The unknowns around generative AI are expansive. For corporates, credit headwinds related to AI include information insecurity, the need for labor force restructuring, and even the loss of control through concepts ranging from hallucinations (a false result) to AI safety (an imprudently managed result). Proprietary processes that cannot be audited or explained leave companies open to legal challenges and may result in unintended outcomes.
There are a host of social risks, as well, particularly if the workforce is unable to transition effectively. Among the long-term concerns that could be managed by policy would be any effects to the already increasingly uneven distribution of wealth and its consequences.
Writers: Molly Mintz and Joe Maguire
This report does not constitute a rating action.
| Primary Credit Analysts: | Chiza B Vitta, Dallas + 1 (214) 765 5864; chiza.vitta@spglobal.com |
| Sudeep K Kesh, New York + 1 (212) 438 7982; sudeep.kesh@spglobal.com | |
| Secondary Contact: | Alexandra Dimitrijevic, London + 44 20 7176 3128; alexandra.dimitrijevic@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.