MSFT - Generative AI: A New Consumer Operating System

2024-06-08 23:40:00 ET

Summary

• Products from established companies, as well as new hardware entrants, are embedding generative AI into operating systems.
• Just as modern operating systems simplified direct interaction with computing hardware, AI agents are likely to sit atop operating systems and abstract away the complexities of traditional OS interactions.
• As consumers shop online in new ways, the digital advertising ecosystem is likely to face substantial disruption, across search, display, and marketplace ad spend.
• Today, gesture and voice are the natural user interfaces.
• While many investors are assuming that generative AI will benefit incumbent technology companies, market share shifts in response to the desktop OS and the mobile OS suggest that the winning consumer hardware platforms will deploy different strategies.

By Nicholas Grous, Associate Portfolio Manager; Andrew Kim, Analyst

The history of computing is defined by improving the productivity of individuals and enterprises. The transition from command-line interfaces (CLIs) in the 1970s to graphical user interfaces (GUIs) in the 1980s enabled the abstraction of complex syntax with visual icons and windows. Then, the flattening of the computing learning curve accelerated the adoption of personal computers (PCs) through the 1990s to spawn the World Wide Web and the internet applications built on top of it. At the turn of the last century, touchscreen phones and mobile operating systems placed the power of computing in our palms. Now, generative artificial intelligence ((AI)) is accelerating the adoption of digital applications and creating the next epochal shift in human-computer interaction.

Products from established companies, as well as new hardware entrants, are embedding generative AI into operating systems. Indeed, all smartphones are likely to undergo AI-centric redesigns, and future AI wearables with product-market fit could become as commonplace as the smartphone itself.

As consumers adopt new form factors, a new period of consumer hardware heterogeneity seems to be emerging that should flourish at least through the end of this decade. Whereas the telephone required nearly 70 years to reach 50% saturation in the US after launching commercially, the personal computer a century later took fewer than 26 years to reach 50% saturation, the cellphone 16 years, and the smartphone only 6, as shown below....

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