JPMorgan An Investors Guide To Artificial Intelligencev 2

Completed 27 Nov 2017 01:09 PM GMT
Disseminated 27 Nov 2017 04:35 PM GMT

Global Equity Research
27 November 2017
An Investors' Guide to Artificial

Intelligence
AI adoption at an inflection point
While the concept of AI has been around for over 50 years, we are at a pivotal Global Technology
point for its adoption today due to the availability of big data, high-powered AC
Stacy Pollard
computing and advances in algorithms – which all make AI cheaper and faster to
(44-20) 7134-5420
implement. This report is intended to serve as both an educational primer on AI as stacy.pollard@jpmorgan.com
well as an investment framework highlighting JPM-covered companies currently Bloomberg JPMA POLLARD <GO>
offering AI solutions (43 companies profiled). J.P. Morgan Securities plc
Varun Rajwanshi
 What is AI? In simple terms, artificial intelligence is the simulation of human
(44-20) 7742-2814
intelligence by machines. AI is different from traditional software programs in varun.rajwanshi@jpmorgan.com
that it extracts knowledge from data and can alter its behavior (or learns) J.P. Morgan Securities plc
without being specifically programmed. Traditional software pre-defines the
Mark R Murphy
logic, whereas AI discovers the patterns and logic. These ‘self-learning’
(1-415) 315-6736
systems are impacting nearly every industry vertical from manufacturing to mark.r.murphy@jpmorgan.com
financial services, giving rise to new business models while making some J.P. Morgan Securities LLC
legacy models obsolete.
Sterling Auty, CFA
 The scope of AI applications is huge and growing. AI can be used by (1-212) 622-6389
enterprises to: 1) Drive sales and customer engagement – AI can improve the sterling.auty@jpmorgan.com
J.P. Morgan Securities LLC
overall customer experience in a multi-channel world with the use of
recommendation systems, virtual assistants, chatbots and AI-managed Tien-tsin Huang, CFA
marketing platforms. 2) Improve operational efficiencies – AI functions are (1-212) 622-6632
tien-tsin.huang@jpmorgan.com
enhancing quality control, predictive maintenance and prescriptive responses, 3)
Enhancing products with embedded AI, and 4) generate new insights and enable
new business models. AI tools will be intimately linked with the overall digital Doug Anmuth
transformation going on now within businesses, and AI is likely to be (1-212) 622-6571
douglas.anmuth@jpmorgan.com
embedded in numerous technology applications within a few years.
 AI will continue to take share within the IT budget. IDC forecasts spending Alex Yao
on AI-focused hardware, software, and services to reach $58bn by 2021, up (852) 2800-8535
from ~$12bn in 2017, making this one of the fastest-growing technology alex.yao@jpmorgan.com
segments (growing at nearly 50% 2017-2021 CAGR). We believe AI J.P. Morgan Securities (Asia Pacific) Limited
functionality (direct or embedded) will take market share within the IT budget, Gokul Hariharan
and therefore vendors that are ahead of the curve in embedding AI will benefit. (852) 2800-8564
The AI platform vendors have taken an early competitive lead; however, we gokul.hariharan@jpmorgan.com
believe there is ample opportunity both for established traditional IT enterprise J.P. Morgan Securities (Asia Pacific) Limited
vendors to embed AI into their core offerings and for a variety of new, Andreas Willi
emerging players to offer creative solutions (from niche and vertical-specific to (44-20) 7134-4569
even broad-scope industry-disrupting ideas). andreas.p.willi@jpmorgan.com
J.P. Morgan Securities plc
 Within our global software/internet stock coverage, we highlight the
Paul Coster, CFA
following companies as well positioned to benefit from AI adoption. (1-212) 622-6425
J.P. Morgan coverage companies which stand to benefit from the move to AI paul.coster@jpmorgan.com
Sector Companies
Internet Google, Amazon, Facebook, Baidu, Tencent, Alibaba
AI PaaS Amazon, Microsoft, Google, IBM, Alibaba, Baidu Further contributing analysts:
Enterprise Software Vendors SAP, Salesforce, Microsoft, Oracle, Adobe and others Alexander Mees
Specialist AI functions Dassault Systèmes, Hexagon, NICE, Siemens, Software AG Sandeep Deshpande
IT Services Accenture, Capgemini, Atos, Cognizant
Toby Ogg
Source: J.P. Morgan.
See page 109 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision.
www.jpmorganmarkets.com
Stacy Pollard Global Equity Research
(44-20) 7134-5420 27 November 2017
stacy.pollard@jpmorgan.com
The AI Software Investment Framework

Artificial Intelligence (AI) is not a winner-takes-all market, in our view. On the
one hand, we could argue that digital-only companies (Alphabet, Facebook,
Microsoft, etc.) will always dominate in the new information age. On the other hand,
many traditional companies also own and regularly create valuable vertical-specific
information (on their customers, products, processes, supply chain, etc.). At the very
least, these companies need to make sure their information assets are digitized, and
then utilize AI and other analytics or operational efficiency tools to maximize the
value of the data.
We see digital transformation as a prerequisite for AI adoption and believe that

digitally mature enterprises will emerge as the lead adopters of AI and thus be able to
reap the benefits that AI brings to the enterprise (be that improvements in operational
efficiency or product offerings with embedded AI capabilities). AI continues to grab
a growing portion of overall IT spending. Accordingly, we believe that the strategic
shift toward AI adoption will continue to benefit digital transformation enablers.
Given that data (large amounts of reliable and diverse data sets) is the fuel powering
current mainstream AI technologies (such as deep learning), we see platform
vendors with well-established ecosystems as better positioned against the
competition to take advantage of AI-driven innovation. Furthermore, large
incumbent enterprise software vendors should have a role to play, given that they
generate the current system of record and intimately understand the IT systems and
needs of the enterprise.
Consultants and IT services vendors, which play a key role in designing,

implementing, and integrating digitization, automation, and AI applications for
enterprises, should continue to benefit as enterprise AI adoption grows. Finally,
specialist and industry-specific AI vendors should fare well with productized or
semi-packaged AI solutions for specific functionality.
Within our global technology/internet stock coverage, we believe the following

companies are best positioned to benefit from Artificial Intelligence.
Figure 1: J.P. Morgan coverage companies which stand to benefit from the shift to AI
Companies best prepared for the
Region Technology Sector AI function / use Analyst
shift to AI
AI platforms, AI-based analytics, object/pattern
European Software SAP, Dassault Systèmes, Hexagon Stacy Pollard
recognition, predictive maintenance, smart cities.
Advisory & education, creation and solution design,
Europe European IT Services Capgemini, Atos Stacy Pollard
deployment and integration.
MindSphere cloud IoT, digital factory, robotics, industrial
European Industrial Tech Siemens Andreas Willi
optimization.
AI platform, predictive analytics, automation bots, Mark Murphy /
US Enterprise Software Salesforce, Microsoft, Adobe
speech recognition and NLP, image recognition. Sterling Auty
AI platform, analytics/data discovery, chatbots, natural
US IT Services IBM, Accenture, Cognizant Tien-Tsin Huang
language, computer vision, advisory & implementation.
America
Robots as digital assistants, utilizing real-time customer
US Applied & Emerging Tech NICE, Cognex Paul Coster
data in chatbots, machine vision.
Search, cloud, home assistants, autonomous vehicles,
US Internet Google, Amazon, Facebook Doug Anmuth
photos, news feed…many others.
AI Platforms, autonomous driving, conversational (NLG, Alex Yao / Gokul
Asia Asian Internet / software Baidu, Tencent, Alibaba
voice), computer vision, customer analytics, etc. Hariharan
2
(44-20) 7134-5420 27 November 2017
Internet The internet companies (like Google, Amazon, Facebook, Baidu, Tencent, Alibaba,
etc), as pure digital entities, have taken the lead in both generating big data and
utilizing AI to analyze big data.
AI PaaS However, many companies are also offering AI PaaS (AI Platform-as-a-Service – a
combined package of big data, cloud computing power and AI/ML toolkits) to
companies that may not have their own existing capabilities. Key AI PaaS vendors
include Amazon, Microsoft, Google, IBM, Alibaba, Oracle, and Baidu.
Enterprise software vendors Since digital transformation is necessary to take full advantage of AI, we believe
there is an opportunity for the many technology vendors that are facilitating the
digital transformation – including enterprise software vendors like SAP, Salesforce,
Microsoft, Adobe and others.
Specialist AI functions Many companies have focused on one of several aspects of AI – such as computer
vision, natural language (text and speech), chatbots, geolocation, predictive design
and pattern recognition, etc. Several coverage companies offering these AI functions
include: Dassault Systèmes, Hexagon, and NICE. Other companies are specializing
in IoT, industrial optimization, predictive maintenance or robotics (like Siemens and
Software AG).
IT Services Consultants and IT services vendors play a key role in designing, implementing, and
integrating digitization, automation, and AI applications for enterprises. Top picks
amongst our coverage include: Accenture, Capgemini, Atos and Cognizant.
3
(44-20) 7134-5420 27 November 2017
Table of Contents
The AI Software Investment Framework ................................2
10 FAQs on AI ...........................................................................7
1. What is AI? .........................................................................................................7
2. Is the current hype around AI justifiable?.............................................................7
3. Why now?...........................................................................................................7
4. What are some of the top AI use-cases (by industry)?...........................................8
5. What is the market size for AI?............................................................................9
6. Is AI a competitive advantage? ..........................................................................10
7. What does AI bring to the enterprise? ................................................................11
8. Who are some key AI vendors? .........................................................................11
9. Jobs and social disruption? ................................................................................11
10. Will AI make humanity obsolete? ....................................................................12
AI will be a disruptive force ...................................................13
Why Now?............................................................................................................15
AI in Enterprise Software.......................................................16
Layers of the AI ecosystem ...................................................18
Data is the New Oil .................................................................19
AI Brings Life to IoT ...............................................................20
The Five Senses of AI ............................................................22
3 – ‘See’: Computer Vision enabling a host of next-gen applications......................24
4 - ‘Analyze and Act’: Ushering in a golden age for data science ...........................25
5 - Remember (Knowledge): Data Discovery and Integration.................................26
The AI application ecosystem ...............................................28
What does AI bring to the Enterprise? .................................30
Is AI a competitive advantage? ..............................................................................30
How are enterprises thinking about AI? Build, buy or outsource?...........................31
Enterprise AI adoption still in its infancy; growing digitization and awareness to spur
growth ..................................................................................................................31
Leading Enterprise AI Use Cases by Industry ........................................................33
The AI-spending opportunity.................................................34
AI-focused spending to witness sharp growth in the coming years; Software /
Services to take the biggest slice............................................................................34
AI-focused spending still a small portion of overall enterprise IT spending.............36
Will AI boost overall IT spending?........................................................................36
Mapping the Vendor Landscape ...........................................38
AI: Is this a winner-takes-all market?.....................................................................38
Categorizing AI vendors........................................................................................40
AI Platform-as-a-Service.......................................................................................41
AI Platforms and deep learning frameworks/libraries .............................................41
Traditional enterprise software vendors .................................................................42
4
(44-20) 7134-5420 27 November 2017
Data Analytics and BI Vendors..............................................................................43

Data and its role in shaping the competition landscape...........................................44
Data integration tools play a role ...........................................................................45
Specialist AI / Vertical-focused / Niche players .....................................................45
Industrial applications, IoT+AI, IT/OT integration and robots ................................46
AI-enhanced customer-facing channels..................................................................48
IT Services............................................................................................................48
Intelligent things/devices .......................................................................................49
Specialized Infrastructure for AI............................................................................51
Cybersecurity—immediate benefactor to machine learning ....................................52
Appendix 1: Artificial Intelligence 101 ..................................53
Historical foundations (philosophy and mechanics)................................................53
Untangling the jargon............................................................................................55
Man vs. machine – the intelligence perspective......................................................56
AI vs. machine learning vs. deep learning..............................................................56
Why do we want machines to learn?......................................................................57
Machine learning – An alternative to rules-based programs....................................57
‘Hey Siri, what is machine learning?’ ....................................................................57
Automating the learning process............................................................................58
Types of learning and application areas .................................................................59
Neural networks and deep learning ........................................................................60
Artificial Neural Networks – A simplified model of the human brain .....................61
Deep learning process flow....................................................................................62
Can machines think and reason? ............................................................................63
Roadmap to AGI...................................................................................................64
The Singularity .....................................................................................................64
Employment in the face of AI: Disruption or Evolution? ....65
Predictable / Routine tasks most susceptible to automation.....................................65
Will AI be a net creator or destroyer of jobs? .........................................................67
Appendix 2: What companies are doing in AI......................68
Accenture (ACN US, OW) ....................................................................................68
Adobe (ADBE US, OW) .......................................................................................71
Alibaba .................................................................................................................71
Alphabet (GOOGL US, OW) ................................................................................72
Alteryx (AYX US, N) ...........................................................................................73
Amadeus (AMS SM, N) ........................................................................................74
Amazon (AMZN US, OW)....................................................................................75
Atos (ATO FP, OW) .............................................................................................76
Aveva (AVV LN, OW) .........................................................................................77
Baidu (BIDU US, N).............................................................................................77
Barracuda Networks (CUDA US, OW)..................................................................79
Box (BOX US, N).................................................................................................79
Capgemini (CAP FP, OW) ....................................................................................79
Cloudera (CLDR US, OW)....................................................................................80
Cognex (CGNX US, UW) .....................................................................................80
5
(44-20) 7134-5420 27 November 2017
Cognizant (CTSH US, OW) ..................................................................................81

Cornerstone OnDemand (CSOD US, N) ................................................................81
Coupa Software (COUP US, N).............................................................................81
Dassault Systèmes (DSY FP, OW) ........................................................................82
Face++/Megvii (Private company).........................................................................84
Facebook (FB US, OW) ........................................................................................84
FireEye (FEYE US, N)..........................................................................................86
Fortinet (FTNT US, OW) ......................................................................................86
Hexagon (HEXAB SS, N) .....................................................................................86
HubSpot (HUBS US, OW) ....................................................................................86
IBM (IBM US, N).................................................................................................87
iFlytek (002230 CH, Not Covered) ........................................................................88
Imperva (IMPV US, N) .........................................................................................89
Indra (IDR SM, N) ................................................................................................89
Micro Focus (MCRO LN, N).................................................................................91
Microsoft (MSFT US, OW)...................................................................................92
NICE Ltd. (NICE US, N) ......................................................................................92
Oracle (ORCL US, OW) .......................................................................................93
Palo Alto Networks (PANW US, OW) ..................................................................93
Sage (SGE LN, OW).............................................................................................94
salesforce.com (CRM US, OW).............................................................................94
SAP (SAP GR, OW) .............................................................................................94
SenseTime (Private Company) ..............................................................................98
Siemens AG (SIE GY, N)......................................................................................99
Software AG (SOW GY, N) ................................................................................ 100
Sophos (SOPH LN, OW)..................................................................................... 101
Splunk (SPLK US, N) ......................................................................................... 102
Tencent (700 HK, OW) ....................................................................................... 102
Twilio (TWLO US, OW)..................................................................................... 103
Ultimate Software (ULTI US, OW) ..................................................................... 104
Workday (WDAY US, OW)................................................................................ 104
Yitu (Private Company) ...................................................................................... 104
Appendix 3: AI acquisitions 2012-2017 ..............................105
Appendix 4: Other J.P. Morgan reports covering the topic of
AI............................................................................................106
6
(44-20) 7134-5420 27 November 2017
10 FAQs on AI
1. What is AI?
In simple terms, artificial intelligence is the simulation of human intelligence by
machines. For example, the development of computer systems with the ability to
learn, reason, discover meaning, perceive environment, learn from experience, and
interact.
In practice, AI is a group of technologies that help facilitate the discovery and

analysis of information for the purpose of making predictions and recommendations,
support decision making, facilitate interactions and automate certain responses. AI
tools will be intimately linked with the overall digital transformation going on now
within businesses, and AI is likely to be embedded in numerous technology
applications within a few years.
AI is different from traditional software programs in that it extracts knowledge from

data and can alter its behavior (or learn) without being specifically programmed.
Traditional software pre-defines the logic, whereas AI discovers the patterns and
logic.
2. Is the current hype around AI justifiable?

Yes; while it is relatively early days, we fully believe AI will be a disruptive force in
the coming years. With advances in computing power, increasing sophistication of
learning algorithms, and vast swathes of data streams available for training,
computers are now able to perform tasks that were once considered the exclusive
domain of the human mind. These ‘self-learning’ systems are impacting nearly every
industry vertical from manufacturing to financial services, giving rise to new
business models while making some legacy models obsolete.
Nearly every major technology player is employing machine learning (ML)-driven

intelligence in some form or another as the relevance of this technology across
different consumer and enterprise applications grows. Further, thanks to the
availability of open-source software platforms / libraries and availability of cheap
computing power (via cloud service providers such as Amazon, Google, Microsoft,
etc.) several start-ups have emerged that are extending the scope of available
applications of ML. Businesses are now deploying AI as a differentiator in their
offerings – be that software platforms such as chatbots for customer service, AI-
enabled systems for fraud detection, customer analytics, etc. or hardware devices
such as smartphones, wireless speakers, and intelligent robots (incl. autonomous
cars). We firmly believe that AI will be at the center of the revolution that will
continue to shape the broader industry landscape in the coming decades.
3. Why now?
If Artificial Intelligence has been around since the 1950s, then why is interest gaining
momentum now? In short, it’s the availability of big data, computing power, the
cloud and advances in algorithms – which make AI easier, cheaper and faster to
implement. 1) Massive sets of data are now available to train and validate the AI
algorithms, and IoT will provide an even greater explosion of data. 2) Computing
power has improved exponentially, and the use of GPUs has greatly accelerated
computations required for AI workloads. 3) The cloud makes aggregated large data
sets and cheap computing power available to data scientists who want to build and
7
(44-20) 7134-5420 27 November 2017
train AI algorithms. 4) And finally the virtuous feedback loop enabled by massive
computing power and big data gives data scientists the opportunity to hone, refine
and perfect their algorithms.
Why not now? Barriers to adoption

Some of the key challenges impeding the adoption of AI across enterprises include a
shortage of available ‘AI-talent’ (data scientists, machine learning experts, etc.),
difficulty in porting existing infrastructure to AI-ready infrastructure, challenges in
quantifying value derived from deploying AI solutions, and lack of a strategic
directive from top management (C-level management, business unit heads, etc.). In
addition, there are concerns surrounding the ‘black-box’ nature of AI algorithms (the
way ML algorithms interpret data to produce an outcome or a set of outcomes is
often not known), which hinder its adoption (especially in highly regulated
industries, such as financial services).
Having said this, we believe that growing enterprise digitization, increasing

awareness of AI solutions and their direct/indirect benefits, and rising sophistication
of AI algorithms will help drive enterprise AI adoption. Further, as the market
matures, we expect consolidation across the AI software vendor landscape and this
should help enterprises select vendors more effectively for AI-related initiatives,
aiding adoption of AI. While adoption may be a point of discussion at this stage, we
believe that AI will be ubiquitous across all the industry verticals and all digitally
mature enterprises in the future.
4. What are some of the top AI use-cases (by industry)?

Current mainstream AI models (such as machine learning) learn from training
examples by identifying and stitching together different features that are
representative of a particular segment within the input data. These algorithms work
well in situations for which there is a large amount of data available for training and
the relationships between the different features in the data are more or less steady.
Some of the prominent use-cases for AI currently include:
 Digital virtual agents, chatbots, NLG (natural language generation), robo-
advisors, automated customer service agents, human emotion perception,
 Customer analytics, sensor data analysis from IoT, legal/contract analysis,
healthcare diagnosis and personalized treatment/drugs,
 Quality control, predictive machine maintenance, yield improvement, warehouse
automated retail stock checks, automation, logistics & fleet management,
industrial and consumer robots,
 Computer vision, image analysis and tagging, autonomous cars, smart
surveillance cameras; automated geophysical feature detection, object detection
(avoidance and navigation), geospatial awareness, video analysis,
 Automated threat intelligence; prevention against cybersecurity threats.
The table below presents a snapshot of different use cases by industry verticals. An
important point to note here is that machine learning algorithms are only as good as
the data that is used for its training. Hence, biases / errors inherent in the datasets will
more often than not lead to broken machine learning algorithms that yield incorrect
results.
8
(44-20) 7134-5420 27 November 2017
Table 1: Sample AI Use Cases Across Different Industry Verticals

Industry vertical Sample AI Use Cases
Automated trading & investment discovery, trading strategies, robo-advisors,
Banking & Securities voice-based commerce, customer behavior analysis, chatbots for customer
services, identity verification, and fraud detection.
Smart surveillance, threat detection, Smart Cities and Utilities, AI-enhanced and
Government personalized education and training, chatbots for info distribution and citizen
engagement.
Predictive maintenance, machine learning driven insights for yield improvement,
Manufacturing & Natural Res.
optimization.
Customer analytics, forecasting and customer demand trends, video analytics,
Comms, Media & Services
computer vision interactivity (e.g. in video games and other immersive media).
Customer analytics, forecasting, anticipating demand trends, reducing revenue
Retail churn, supply chain management, warehouse automation, chatbots for customer
services, conversational commerce.
Claims management and fraud detection, analyzing customer behavior and
Insurance reducing revenue churn, automated underwriting, pricing, conversational
platforms for customer services, complying with regulations, trading strategies.
Enhanced supply-demand management based on AI-driven analytics, predictive
Utilities maintenance, dynamic pricing based on consumption analytics (provided by
smart meters, for example), chatbots for customer service.
Diagnostics, image analytics for early disease detection, drug discovery, patient
Healthcare Providers monitoring (pre-emptive warning systems), personalized medicine and treatment,
telehealth (like inpatient robots), VR for surgical training and simulation.
Self-driving vehicles, Advanced driver assistance systems, personalized content
Transportation delivery / productivity enhancement tools used by providers of transportation
services.
Customized / adaptive learning programs, skill upgrade programs based on real-
Education
time insights gleaned from job market trends.
Warehouse automation, inventory management based on insights gleaned from
Wholesale Trade
demand analytics, autonomous delivery.
Sources: J.P. Morgan, Gartner, Capgemini.
5. What is the market size for AI?

It is important to note that AI is not a product offering in itself – it is essentially a
model (a set of software tools / algorithms) that helps identify patterns and
associations in large amounts of data. Further, AI can either be embedded in
hardware products or software platforms or be deployed as a component in a larger
software process implementation. Hence, rather than focusing on AI, it is helpful to
talk about the markets / applications enabled by AI, which can then be assigned a
dollar value.
IDC forecasts spending on AI-focused hardware, software, and services to reach

$58bn by 2021, up from ~$12bn in 2017, making this one of the fastest-growing
technology segments (growing at nearly 50% ’17-’21 CAGR). The components of
this AI-focused spend include:
 AI applications – applications that learn, discover, and make recommendations /
predictions or core AI components.
 AI software platforms – tools built on core AI components that enable AI-driven
use cases.
 AI-related IT & business services – for example: consulting / implementation
services provided to an enterprise for deploying AI-related technologies.
 AI-dedicated server and storage spending (hardware).
9
(44-20) 7134-5420 27 November 2017
Figure 2: Global AI-focused spending* ($, bn)

70.0
57.6
60.0
50.0
48% CAGR
40.0
30.0
20.0 12.0
5.3 7.5
10.0
-
2015 2016 2017E 2021E
AI-focused spending*
Source: AI-spending estimates from IDC. *Includes AI-focused spending on hardware, software (applications + software platforms),
and services (IT consulting & system implementation).
To put this spending size into perspective, AI growth projections of ~50% CAGR
through 2020/21 are more than twice the growth rate of other high-growth tech sub-
sectors (such as Big Data 23% and Cloud 20%). By 2020, AI-focused spending could
be about the same size as the security software market.
Figure 3: AI market growth compared to other high-growth technology segments

250
Approximate 2020 market size ($, bn)
200 Total cloud, 20%
150
100
AI-focused spending,
Big data, 23% 50%
50 Security, 8%
0
0% 10% 20% 30% 40% 50% 60%
Approximate 2016-2020 CAGR

Source: Bloomberg, IDC, J.P. Morgan.
6. Is AI a competitive advantage?
Yes, we believe that early adopters of AI functionality will see significant benefits,
which also speaks to the current urgency in the market for enterprises and
governments to consider their approach and strategy around AI.
Whereas last year most organizations were testing proof of concepts in AI, 2017 has
seen more AI applications moving into production. It is still early stage, though, and
we expect to see continued enhancements and fine tuning for these applications to
find their full value. Today many AI applications are automating existing repetitive
tasks, but we see the future as very much about whole new processes or even
business models being created because of the capabilities of AI.
Leaders in digital transformation will also be leaders in adoption of AI

Across industries, we believe those corporates addressing their own digital
transformation now will also be the leaders in the adoption of AI. Certainly, the pure
digital companies have already shown a lead in using AI (Google, Amazon, Uber,
10
(44-20) 7134-5420 27 November 2017
Netflix, etc.), and the faster other industries digitize, the faster they can take
advantage of the insights and efficiencies of AI.
7. What does AI bring to the enterprise?

Artificial Intelligence is a buzzword in every boardroom, and enterprises want to use
AI for multiple purposes. 1) Drive sales and customer engagement – AI can
improve the overall customer experience in a multi-channel world with the use of
recommendation systems, virtual assistants, chatbots and AI-managed marketing
platforms. 2) Operational efficiencies – AI functions are enhancing quality control,
predictive maintenance and prescriptive responses. Efficiencies can range from
reducing operational costs and churn to increasing legal/regulatory compliance and
improving machine and process performance. 3) Enhancing products with
embedded AI. Incorporating AI into a product or service can provide end-customer
benefits. 4) Generating new insights, and enabling new business models. Better
data analysis is allowing companies to think differently and often more creatively.
Employees are spending less time in routines, and more time thinking of new
products, new go-to-market strategies and engaging with and understanding
customers at a higher level.
8. Who are some key AI vendors?

As is characteristic of any nascent market, the AI vendor landscape is in a state of
flux, spanning across large technology firms to fledgling start-ups. Although vendors
such as Google, Facebook, Baidu, Apple, Microsoft, and Amazon may have taken
early advantage of their large data sets and established platforms, the large enterprise
software vendors (like SAP, IBM, Oracle, salesforce.com, Sage, etc.) are gradually
embedding AI into multiple aspects of their offerings. In addition, we expect certain
revolutionary aspects of AI to bring to market new and/or specialist vendors. We
have categorized vendors into several functional areas of AI (while noting that many
vendors cross functions may fit into multiple categories). Key vendor categories (and
sample vendors) include:
 AI Platform-as-a-Service: Amazon, Microsoft, Google, Alibaba, Baidu, IBM

 Enterprise software vendors: SAP, Oracle, Microsoft, Salesforce.com, Adobe
 Data analytics vendors: SAS, SAP, Oracle, Tableau, Mathworks, Qlik, Palantir,
IBM, Informatica
 Specialist AI / Vertical-focused / Niche players: Clarifai, Kore.ai, Aspect, IPSoft,
Iflytek, Sensetime
 Industrial IoT + AI: Siemens, GE, PTC, SAP, Amazon, Software AG
 IT Services: Accenture, IBM, Capgemini, Atos, Cognizant
9. Jobs and social disruption?

Today, AI-enabled systems can technically replace not only low-skilled jobs but also
ones that require a high degree of expertise (such as reading CT scans). While
adoption of self-learning AI systems will result in meaningful productivity
improvements, its impact on the job market in the near to medium term cannot be
ignored. As per a McKinsey study, ~50% of time spent by the US workforce is
highly susceptible to automation using currently available technologies. This could
potentially lead to job polarization – concentration of jobs either in the high-paying,
non-routine cognitive and low-paying, non-routine manual buckets (jobs least
11
(44-20) 7134-5420 27 November 2017
susceptible to automation by currently available technologies) – and job

displacement, especially in certain verticals such as manufacturing, customer
service, financial services, etc. that have a higher proportion of automatable jobs, and
associated social unrest.
However, overall we believe AI is more likely to supplement humans and make

them more productive. In addition, while many of today's job functions will be
done by machines and computers, we think many new roles as yet unknown will be
created for humans. No doubt we will need to adapt our skills, education and
perhaps social systems to the evolving AI-embedded world.
10. Will AI make humanity obsolete?

The political and philosophical debate we mainly leave to others, but in our opinion
there is no need for immediate panic. We are actively implementing narrow
artificial intelligence (task focused), but so far nothing close to (an all-powerful and
all-knowing) artificial general intelligence. That said, there are risks in not
understanding the logic behind even some of the simple tasks already automated by
AI (such as resumé filtering, criminal sentencing recommendations, etc.). But as for a
dystopian future where humans are no longer needed or somehow made extinct?
Well, all things are possible (and AI is not our only threat here), but it seems unlikely
machines would have the sense of purpose, motivation, emotional engagement with
the future, and sense of limited time that drives humanity’s intelligence. There is also
a strong argument to suggest that humans and AI merge…but that is a debate for a
different time.
12
(44-20) 7134-5420 27 November 2017
AI will be a disruptive force

Firms often use different With advances in computing power, the increasing sophistication of learning
nomenclature such as artificial algorithms, and vast swathes of data streams available for training, computers are
intelligence, cognitive now able to perform tasks that were once considered the exclusive domain of the
computing, deep learning, human mind. These "self-learning" systems are impacting nearly every industry
machine intelligence when
vertical from manufacturing to financial services, giving rise to new business models
referring to applications driven
by self-learning systems. While
while making some legacy models obsolete. Nearly every major technology player is
keeping the broader distinctions employing ML-driven intelligence in some form or another as the relevance of this
in mind, we will refer to ML- technology across different consumer and enterprise applications grows. Further,
driven intelligence as AI in the thanks to the availability of open-source software platforms / libraries and
subsequent sections. availability of cheap computing power (via cloud service providers such as Amazon,
Google, Microsoft, etc.) several start-ups have also emerged that are extending the
scope of available applications of ML. Businesses are now deploying AI as a
differentiator in their offerings – be that software platforms such as chatbots for
customer service, AI-enabled systems for fraud detection, customer analytics, etc. or
hardware devices such as smartphones, wireless speakers, and intelligent robots (incl.
autonomous cars).
McKinsey notes that companies invested between $26bn and $39bn in AI-related
technologies in 2016, with large technology and digitally mature manufacturing
firms comprising roughly $20-30bn of these investments (private financing
comprised the remaining $6-9bn). The US government invested around $2bn in AI
technologies last year (Source: White House paper: Artificial Intelligence,
Automation and the Economy) and the Chinese government has made AI a national
priority – estimating that by 2020 the scale of core industries of AI will exceed
150bn yuan ($23bn).
Despite the scale of AI investments (which continues to grow), AI is far from being
pervasive across the consumer and enterprise landscape. AI adoption has just begun
and its disruptive potential can already be seen by instances where organizations
have deployed AI – we highlight three sample examples below:
Netflix recommender system: A billion dollars per year in value

1
The Netflix recommender According to a paper1 published by Netflix, 80% of hours streamed on Netflix are
system: Algorithms, Business based on recommendations (driven by its recommender system), while the remaining
value, and Innovation by Carlos 20% is search-driven. A typical Netflix user spends roughly 60-90 seconds searching
A. Gomez-Uribe and Neil Hunt.
/ reviewing titles before losing interest. Thus, if the user does not find a title of
his/her liking within 90 seconds, Netflix runs the risk of the user abandoning its
services. This is where the company's recommender system, driven by machine
learning, comes in. Netflix estimates the combined impact of personalization and
targeted recommendations (enabled by its recommender system) saves the company
more than $1bn per year. In fact, broadly speaking, ‘personalization’ ranks among
the top categories of AI application areas that are used by customer-facing
organizations to increase engagement, loyalty and mind-share. A recent BCG report
(Profiting from Personalization, May 8 2017) mentions that personalization will
drive a revenue shift of ~$800bn over the next five years to the 15% of
companies (in the retail, health care, and financial services verticals) that employ it
effectively.
13
(44-20) 7134-5420 27 November 2017
AI in Journalism: 12x increase in earnings coverage2

2
The future of augmented Associated Press (a news service agency) could only cover roughly 6% of all the US
journalism: A guide for corporate earnings (5,000+ companies) in 2013 given its limited staff of business
newsrooms in the age of smart
writers. The agency began working with an AI firm, Automated Insights (which
machines, by Francesco
Marconi, Alex Siegman, and
specialized in Natural Language Generation), in 2014 and estimates that employing
multiple AI systems. AI solutions freed up roughly 20% of journalists' time. The freed up time (which was
previously consumed by the manual work of poring through earnings data) could
now be used for more complex / quality work. By 2015, the AI system used by
Associated Press was writing reports on 3,700 corporate earnings, more than 12x
increase in coverage vs. 2013. No jobs were lost – rather, journalists could now focus
more on qualitative, high-value-added work.
AI enabling hundreds of millions of dollars in datacenter-related power savings

Power consumption and cooling costs comprise a meaningful chunk of overall
datacenter operating costs and thus minimizing these costs is one of the key priorities
of any datacenter operator. Google, which has an installed base of several million
servers, decided to take on this problem using AI (technology acquired by its
DeepMind acquisition in 2014) to manage power usage across its datacenters. This
resulted in nearly 15% savings in overall power consumption (after accounting for
electrical losses and other non-cooling inefficiencies), according to DeepMind.
Considering Google’s overall datacenter power consumption, this could translate to
meaningful savings running into hundreds of millions of dollars.
Figure 4: AI-driven reduction in power consumption in Google's datacenters
Source: Adapted from DeepMind blog titled: DeepMind AI reduces Google datacenter cooling bill. ML = Machine Learning. PUE =
Power Usage Effectiveness overhead.
The broader enterprise complex is just starting to realize the potential benefits
available from deploying AI solutions. Indeed, we believe that enterprise AI
adoption is set to gain rapid pace over the coming years as the benefits derived
from AI become more tangible, awareness improves, and enterprises become
more digital. This is likely to drive a shift in enterprise spending, away from
traditional ‘run-the-business’ applications toward more ‘transform-the-business’
solutions. This creates both opportunities and risks for enterprise software vendors.
We will discuss these dynamics in the subsequent sections.
14
(44-20) 7134-5420 27 November 2017
Figure 5: Survey: technologies having the greatest impact on the firm in the next decade
Artificial Intelligence | Machine Learning 44%
Digital tech | Internet of Things (IoT) 26%
FinTech solutions 12%
Cloud computing 8%
Blockchain 5%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Source: NewVantage Partners; survey respondent sample had a heavy financial services / insurance skew (~75%).
Why Now?
If Artificial Intelligence has been around since the 1950s, then why is interest
peaking now? In short, it is the availability of big data, computing power, the cloud,
and advances in algorithms – which make AI easier, cheaper and faster to obtain.
1. Big data and Internet of Things (IoT). Massive sets of data are now available
to train and validate the AI algorithms. Image analysis is being perfected through
the large and growing numbers of digital images being stored on the Internet and
various clouds (viewed as testing grounds for AI models). The wide variety of
text, documentation, and audio is useful for training natural language generators
as well as speech recognition. IoT will also provide an explosion of data with
multiple purposes, from predictive maintenance to Smart Cities.
2. Computing power: Improvements in computing power have more or less
followed Moore's Law (an observation which states that the transistor count of an
integrated circuit will double every 18 -24 months). This has enabled tremendous
innovation in the electronics industry, from the room-sized computers in the
1950s to the point that we can now carry a much more powerful computer in our
pocket. However, analyzing troves of datasets to make computers learn still
proved to be a daunting task for many cutting-edge microprocessors until
researchers found that the use of Graphics Processing Units (GPUs), traditionally
used for computer game graphics, greatly accelerated the computations required
for AI workloads. Advancements in AI research and increased sophistication of
algorithms have paved the way for new alternative computing architectures (such
as Google’s TPU) specially designed for AI-related computations. The diversity
and power of computing elements available today are enabling rapid advances in
the field of AI. Indeed, as Shane Legg of Google’s DeepMind notes, training an
AI algorithm that would take one day on a Google TPU would have taken a
quarter of a million years using a cutting-edge 1990s microprocessor.
3. The Cloud makes big data more widely accessible. Aggregating more and
more data into the Cloud makes big data more accessible to a wider set of users,
which boosts opportunities for AI as well. The same goes for cheap compute and
data engineering in the cloud.
4. Algorithmic sophistication. The virtuous feedback loop enabled by massive
computing power and big data gives data scientists the opportunity to hone, refine
and perfect their algorithms. It also widens the opportunity for many more
potential applications.
15
(44-20) 7134-5420 27 November 2017
AI in Enterprise Software
In time, AI is likely to exert a profound impact across the enterprise software landscape.
AI is expected to drive the next leg of automation in Enterprise software, spanning
across Intelligent Bots acting as the first point contact for Customer Service use cases,
to cataloguing huge volumes of data (text/images) to Robotic Process Automation
(Robotic Process Automation is the use of software robots, created using Machine
Learning and AI, to imitate humans to handle high volume, repeatable tasks). However,
the true impact of AI in software stretches beyond automation, into revenue
generating/cost saving functions by predicting actions based on historical patterns, thus
enabling customers to do things like increasing customer retention (by predicting churn)
or preventing downtime (via predictive maintenance on machines/infrastructure).
Discussion of AI is spreading like wildfire among enterprise software companies.

The incorporation of AI can be seen across the entire stack, from the application
layer (SAP, Salesforce, HubSpot) to the platform layer (Microsoft, Cloudera) to the
Infrastructure layer (Nutanix). Among enterprise software companies, the cloud
computing companies are in a unique position to take advantage of AI due to the
massive volume of data that these companies store and process, which is a crucial
component for delivering effective AI solutions.
Incorporating AI directly into the application layer delivers value to customers much
faster, as they do not have to invest in infrastructure/resources to build Machine
Learning models. For example, SAP’s Leonardo Machine Learning tools embed AI
into existing enterprise applications – like Service Ticket Intelligence which
processes inbound social media posts and emails, or the Customer Retention
application which can anticipate customer behavior. Salesforce also provides a great
example: it has incorporated AI (called Einstein) into the application layer to drive
higher value to customers across its stack of clouds in Sales, Service, Marketing,
Commerce and Platform. Based on the data that salesforce already stores in its
platform, Salesforce Einstein can predict the likelihood of a deal closure, can allow
its customers to build a marketing campaign to engage with the customers at the right
time to have the maximum impact, or provide product recommendations to end-
customers using AI built into the salesforce Commerce Cloud. Other SaaS
companies such as HubSpot are also using AI to offer such capabilities as Predictive
Lead Scoring or allowing customers to create intelligent bots, while companies like
Workday or Cornerstone are using AI to improve employee retention and
recommend learning content.
While incorporating AI into the application layer drives a faster time to value, it will
likely provide a narrower set of use cases, relatively restricted to pre-defined models.
Allowing customers to use AI/Machine learning as a platform broadens the
opportunity set and enables customers to apply AI to use cases of their choosing
based on their own Machine Learning/Deep Learning models. However, one
important point to consider in using an AI platform is the infrastructure investment,
since Machine Learning or Deep Learning algorithms are very iterative and compute-
heavy processes thus requiring a very powerful infrastructure environment. As such,
an AI platform offered as a PaaS layer on a pay-as-you-go licensing model could
have its advantages, as customers wouldn’t have to invest in the infrastructure
environment and could focus on the algorithms/models they want to build. Microsoft
is one of the very few companies that is offering an AI platform as a service as part
of Microsoft Azure. Microsoft not only offers a set of Machine Learning services
including an ML studio, workbench (free), data prep and model management
16
(44-20) 7134-5420 27 November 2017
capabilities, it also offers a set of cognitive services such as Image recognition and
Speech recognition, which can be incorporated by developers into their applications.
Other companies such as Cloudera are also making strides in this area by offering
Spark as a platform for AI along with a new Data Science Workbench.
The application of AI can also be seen on the infrastructure side, led by companies
such as Nutanix which recently introduced Nutanix X-fit (Cross-fit) which can not
only predict problems with hardware before they occur but can also offer
suggestions, for instance suggest if a workload should be hosted on-premises or in
the cloud based on SLA requirements and cost.
17
(44-20) 7134-5420 27 November 2017
Layers of the AI ecosystem

AI in its purest form is just self-learning software, so it is important to examine the
broader AI ecosystem to better understand the interdependency of the entire IT stack.
See Figure 6 below (source: Cognizant, and Frank, Roehrig, & Pring).
 The Experience layer includes the interface, device or application - which is

essentially how humans interact with the underlying AI software.
 The Intelligence layer encompasses the AI algorithms, as well as the broader
software ecosystem which provides task-specific functionality, and of course the
middleware which bridges the gap between applications, networks, etc.
 The Data layer is critical for AI, and the sources of data can be very wide.
Systems of record inside the organization create data, as does the Internet of
Things (sensors, cameras, etc.). Data beyond the enterprise is also highly valuable
to bring context (particularly to customer analysis or competitive environment),
and this can include social media, web search, geo-location, etc.
 The Infrastructure layer, which includes the cloud, data centers, networks, etc.,
supports the collection, storage and transference of data.
Figure 6: Layers of the AI ecosystem
EXPERIENCE
Interface - listen/talk/voice, see, typing, motion, etc.
Device - PC, mobile phone, virtual reality glasses/headsets, car, home, etc.
Application - The logic and workflow of a process - e.g. booking a car, processing a claim, making a
trade, or analysing an MRI screen etc.
INTELLIGENCE
Process Middleware - software
that acts as a bridge between
applications, networks, etc.
Process
Middleware
AI - algorithms, automation
processes, machine learning,
neural networks.
Software Software Ecosystem -

AI Ecosystem linkages to other
software tools via APIs
that provide task specific
functionality.
DATA
Data & Metadata from other sources - IoT Infrastructure - sensors, cameras,
Systems of Record - ERP, SCM, etc.
social media, web search, geo-location, etc and connectivity.
INFRASTRUCTURE
Cloud, data centers, networks etc.
Source: Adopted from Cognizant and "What to Do When Machines Do Everything", Frank, Roehrig, and Pring.
18
(44-20) 7134-5420 27 November 2017
Data is the New Oil

Data is the fuel of the digital economy
The same way as oil powered an industrial revolution, data will drive the Fourth
Industrial Revolution. As a raw material, the uses of oil are limited, but once refined,
the uses are vast. Data in its raw state also has fairly limited uses, but once
aggregated and analyzed the uses of data appear almost unlimited. And with data, the
more the better – such that quantity creates its own quality.
We are in the early days of the Fourth Industrial Revolution where big data, analytics
and AI are becoming increasingly relevant and useful. But we see the potential as
every bit as large as the transformation that refined oil has brought to the global
economy over the last 100 years (impacts on energy, transport, and creating whole
new industries based on plastics, petrochemicals, etc.).
AI in our view will also transform nearly every industry and create new ones.
Already, Netflix, Amazon and Uber are using AI and automation to enhance
customer experience (e.g. recommendations, mapping/routing/scheduling) in ways
that have allowed them to take market share from incumbents.
Data is also superior to oil in several ways:

 The value of data is exponential. The value of oil is linear (one barrel is worth
$60, 10 barrels are worth $600), but data increases in value at an exponential rate.
For example, combining one set of data with another is more than 1+1 because
the interaction, correlation and relationships between the data can be worth far
more than 2.
How big is big data?  We are creating data exponentially. Oil is ultimately a finite resource, and it is
IDC predicts that global data expensive and time consuming to obtain. Data on the other hand is relatively
volumes will reach 180 zettabytes
21
cheap to create, store and manipulate – with the technologies getting better,
by 2025 (a zettabyte is 10 , or faster, cheaper all the time. We frequently hear statistics about how much data is
70
more precisely 2 bytes). Compare
this Cisco’s estimate that global crossing the internet, or how much is being collected by the Internet giants. On
internet traffic will total 1.3 top of this, the Internet of Things (IoT) is about to create another exponential
zettabytes this year. step-up in the volume of data collected around the globe. Data-generating sensors
will be embedded into just about everything, from cars and assembly lines to
toothbrushes, light bulbs and other IoT end-points.
 Digital twins. In the not-too-distant future, we expect there will be a digital twin
for just about every physical object in the world. Digital twins will exist for
vehicles, airplanes, ships, trains, buildings, plants, geospatially-tuned landscapes,
people, genetic codes, drugs, and networks themselves (such as the electricity
grid or the Uber network of cars).
 Data can multiply itself and is easily distributed. Not only is data easily
replicable, but lessons learned by one AI machine can be handed directly to
another machine (assuming they aren't already networked). Compare this to the
slow rate at which humans gather and transfer knowledge (basically, humanity
has benefitted enormously from its collective intelligence, but there are certain
things at a local level which each human must learn for himself).
Digitize everything, refine your own oil

On the one hand, we could argue that digital-only companies (Alphabet, Facebook,
Netflix, etc.) will always dominate in the new world. On the other hand, many
19
(44-20) 7134-5420 27 November 2017
traditional companies also own and regularly create valuable information (on their
customers, products, processes, supply chain, etc.). At the very least, these
companies need to make sure their information assets are digitized, and then utilize
AI and other analytics or operational efficiency tools to maximize the value of the
data. To repeat a theme we’ve mentioned several times in this report: digital
transformation and AI will go hand-in-hand.
There are several data problems still facing AI applications today:

 Weak, biased, incomplete (including small sample sizes), poorly tagged, non-
relevant or outright incorrect data can lead to invalid analysis or undesirable
outcomes.
 Data security will become increasingly important, including regulatory
requirements around the protection and physical storage of personal data in
particular (GDPR – Global Data Protection Regulation in Europe, for example).
 Concerns surrounding the ‘black-box’ nature of AI algorithms (the way ML
algorithms interpret data to produce an outcome or a set of outcomes is often not
known).
 Narrow applications of AI may fail to understand external impacts or omit future
relevant data.
 Lack of an ethical framework, or a machine’s inability to truly understand ethical
implications and comprehend context.
 Data haves and have-nots (potential monopoly power of an entity controlling vast
amounts of data for its semi-exclusive use).
AI Brings Life to IoT

AI + IoT: A Partnership to Drive Scale
Internet-of-Things (IoT), and the associated interconnectivity (via the internet or
local networks) of computing devices and sensors embedded into everyday objects,
will enable the receipt and distribution of vast sums of data. The relationship
between AI and IoT is symbiotic and complementary in nature; AI requires huge
volumes of data from which it can learn, and IoT benefits from self-learning, trained
algorithms in order to process, interpret and render useful insights from the volumes
of data generated. IoT devices (e.g. temperature sensors, noise sensors, airborne
drones equipped with cameras, energy meters) will serve as a portal for information
and data capture. AI + IoT relationships can be structured in three overarching
categories:
 IoT generated data as an input to the AI. Here the IoT end point serves as the
data gatherer, and feeds the Machine Learning model in the AI system with
captured data. Ongoing training through data processing will make the model
more 'intelligent'. An example of this type of relationship can be reflected on a
construction site, an area where emphasis is placed on site safety, and resultantly
site managers are constantly assessing potential safety hazards. An AI system
connected to IoT endpoints (e.g. surveying and monitoring tools, on-site cameras,
drones) will be embedded with a trained model that can identify potentially
hazardous objects, and its accuracy will continuously improve over time as it is
fed more data from the IoT end points.
20
(44-20) 7134-5420 27 November 2017
 AI as a component of the IoT System. In this structure, AI will be a feature or

component in the IoT system. The AI will help to interpret and make sense of the
data collected by the IoT enabled device, for the specific application the system
has been designed for. Visual impairment support devices, for example, coupled
with an AI inference engine can help to interpret the visual feed data, and convert
the data into useful audio to help the user.
 AI and IoT in a system of feedback. In this setup, the IoT system continuously
feeds data to the AI system, resulting in an AI that is continuously evolving and
updating. Over time and with improved ‘intelligence’, the AI produces and
deploys a new production system, which then aids and enhances the IoT system’s
inferencing capability. A key use case for this particular structure is in
autonomous vehicles; in which an up to date inferencing engine and AI system
are imperative. Changing variables such as weather conditions, roadworks and
pedestrian flow among others require the inferencing engine embedded into the
sensors to be continuously updated and be alert to the changing environment.
Figure 7: AI + IoT Data Cycle
Sensors
Audio Video
IoT AI
Decision Apps
making
Analytics
Source: Gartner.
21
(44-20) 7134-5420 27 November 2017
The Five Senses of AI

AI-driven systems and solutions are enabling a fundamental shift in the way we
interact with machines and broadening the scope of tasks amenable to automation.
Just as we humans use the five primary sensory functions (vision, hearing, taste,
smell, and touch) to interact with our environment, an AI-driven system can be
thought of as having five primary senses, enabling the system to listen/talk, see,
analyze/act and remember (knowledge). We refer to the technologies associated with
these five AI senses as core AI components, as these are central building blocks on
which further applications or use-cases can be developed. Any AI-driven platform or
system can be thought of as a solution built on one or more of these core AI
components.
Table 2: Core AI components, sample application areas and vendors

Corresponding AI
Core AI component Description ‘sensory’ function Application areas Sample vendors
The ability of computers to understand (and converse Digital virtual agents,
Natural Language Processing / Amazon, Google, IBM,
in) human languages. Although NLP techniques have chatbots, speech
Speech recognition / text 1. Talk Microsoft, Nuance,
existed in the past, recent advances in machine biometrics, automated
analytics / Natural Language 2. Listen Lexalytics, Basis Tech,
learning have dramatically improved the accuracy of customer service
Generation Expert System, iFlytek
NLP algorithms. agents
Computer Vision (or Smart Vision) technologies Autonomous cars,
Amazon, Baidu,
enable extraction of meaningful, actionable smart surveillance
Google, IBM, Microsoft,
Computer Vision / Smart Vision information by analyzing digital images/videos. cameras, automated
3. See Clarifai, Allied Vision,
Technologies Examples include machine vision in autonomous cars, retail stock checks,
Bosch, Nice Systems,
image recognition, facial recognition, motion tracking, industrial and consumer
IntelliVision, Cognex
etc. robots
Analyzing data to provide actionable insights to
enhance decision making. Traditional analytic tools
Automated threat
are often descriptive or diagnostic in nature, while AI-
intelligence, quality IBM, Oracle, SAP,
Augmented / Prescriptive enabled analytic tools have predictive / prescriptive
4. Analyze/Act control, predictive MicroStrategy,
Analytics (recommending action in response to an event)
machine maintenance, Tableau, Qlik, Tibco
capabilities. Broadly speaking, AI-enabled analytic
etc.
tools are capable of operating on unstructured data
(big data).
Data integration as the ability to extract, integrate,
structure, warehouse and migrate data. Smart data
discovery enables the user to automatically locate,
IBM, SAP, Talen,
project and curate findings which are relevant to them Extracting, preparing,
Oracle, Cambridge
Data stores, connectors, search (e.g. anomalies, correlations, pattern, clusters and migrating, accessing,
5. Remember Semantics, Dassault
engines, smart data discovery forecasts), without the need to write algorithms. inferencing,
(EXALEAD), Micro
Encapsulates interactive data visualization, predictive representing data.
Focus (IDOL)
analytics, pattern matching and machine learning to
provide autonomous decision making support in a
visual way.
Source: J.P. Morgan, Gartner, Capgemini.
1/2 - ‘Talk/listen’: Conversational Platforms on the rise

One can now order a cab, book a table at a restaurant, and make payments using
messaging platforms such as Line, WeChat, and Facebook's Messenger. Similarly,
Virtual Personal Assistants (VPAs) such as Apple's Siri, Google Assistant,
Microsoft’s Cortana, Amazon’s Alexa, or Baidu’s Duer allow users to look for
information and execute commands at the user's request – using voice-based inputs.
On the enterprise front, chatbots are not only being deployed to service customer
queries but are also being used to enhance productivity and improve efficiency.
These examples represent a paradigm shift in the way we interact with devices /
platforms, driving new business models centered on conversations (chats/texts, or
22
(44-20) 7134-5420 27 November 2017
voice). Advances in speech recognition and Natural Language Processing (both

enabled by machine learning) are driving this shift.
Any conversational agent (be it a chatbot or a VPA) has the following key
components: a user interface to accept inputs (voice commands or text), NLP
(Natural Language Processing)/speech recognition element (to understand user-
provided inputs), dialogue management (which helps provide context for the
conversation), and back-end infrastructure (which connects the bots/VPAs to
different applications/services).
Figure 8: Framework of a typical conversational commerce application
Source: Adapted from Gartner, J.P. Morgan. API = Application Programming Interface.
Messaging services and VPA providers are opening their platforms to third-party
developers to expand the diversity of services / applications that can be provided. As
an example, Messenger is now host to more than 50,000 chatbots since Facebook
opened the platform to bot developers. Similarly, Alexa boasts of over 25,000 skills,
thanks to Alexa Skills Kit which enables developers to build new skills (or
applications) for Alexa. For product/service providers, conversational platforms
provide an opportunity to maintain a deeper level of engagement with customers (via
personalized conversations), helping drive loyalty and mind-share. This point is
corroborated by a recent survey from Nuance (VPA provider), which shows that a
majority of customers (89%) prefer a conversational interaction with a virtual agent
when it comes to customer service / interacting with a business (vs. searching
through Web pages or a mobile app on their own).
Apart from B2C (Business to Consumer) applications, enterprises are boosting

productivity by deploying conversational bots across several functions such as
vendor payments/invoicing, internal HR functions (training/onboarding/query-
handling), search, etc. Traditional enterprise software vendors (such as SAP and
Oracle) are also developing chatbot strategies to address this paradigm shift.
As per Gartner, by 2021, >50% of enterprises will spend more per annum on bots
and chatbot creation than traditional mobile app development, signaling the high
growth nature of conversational platforms.
Other notable enterprise chatbot / conversational AI platform vendors include

Microsoft, IPSoft, Nuance, Slack, VoiceBox, MindMeld, Next IT, Aspect, Kore, etc.
23
(44-20) 7134-5420 27 November 2017
3 – ‘See’: Computer Vision enabling a host of next-gen

applications
Computer Vision (or Smart Vision) is the ability of machines to extract meaningful
and actionable information from images or video streams. Video and image traffic
comprise the biggest portion of the growth in ‘unstructured’ data (driven by the
proliferation of cameras). This introduces challenges in both manual monitoring of
video/image feeds as well as tagging/indexing data for further analysis. Driven by
advances in machine learning techniques (and improvements in camera technologies
and computing power), computer vision is seeing brisk adoption across enterprises
for tasks such as identifying objects, people, facial expressions, monitoring activity,
and surveillance.
Figure 9: Identification and classification of static/dynamic objects Figure 10: Tally – Retail shelf auditing and analytics robot
using machine learning
Source: Simbe Robotics.

Source: Nvidia.
Figure 11: Urban mapping solutions - for Smart Cities Figure 12: LiDAR read for terrain, construction, flood analysis, etc.
Source: Hexagon Leica RealCity Urban Mapping Solution

Source: Hexagon Leica Geosystems; ALS80 Airborne LiDAR Sensor.
Computer Vision technologies are also driving a wave of innovation in the field of
robotics, extending its use-cases across several industry verticals. Examples of some
industry use-cases of Computer Vision include: healthcare (image analytics for early
disease detection & classification), retail (automated stock checks, facial recognition
to enhance shopping experience/personalized advertising), automotive (advanced
driver assistance systems), banking and insurance (ATM fraud control, identity
24
(44-20) 7134-5420 27 November 2017
verification), manufacturing (production line monitoring), and security (smart

surveillance).
Computer Vision APIs (Application Programming Interface – essentially a set of

tools on which Computer Vision applications can be built) are offered by all the
leading cloud service providers (Amazon Rekognition, Google Cloud Vision API,
Microsoft Azure Cognitive Services, Watson Visual Recognition) and certain
specialized vendors such as Clarifai and Imagga. In addition, there are several
vertical-specific vendors that offer tailored computer vision technologies – we
summarize some representative vendors in the table below.
Table 3: Representation computer vision software vendors across different industry verticals
Industry vertical Representative Computer Vision software vendors
Catchoom, Clarifai, Syte.ai, ViSenze, VisionLabs, FLIR, ShopperTrak,
Retail
Johnson Controls, Amazon Go, Trax technologies, Vispera
Manufacturing Cognex, Siemens, SmartFactory, Isra Vision
Media Clarifai, IBM, Metaliquid, VuDigital
Healthcare Arterys, Google DeepMind, IBM
Security / Surveillance Bosch, Qognify, CrowdVision
Source: Gartner, J.P. Morgan.
4 - ‘Analyze and Act’: Ushering in a golden age for data

science
Put simply, data science entails translating raw data into actionable insights. This
sensory function can be considered as the central element of any AI platform.
Enterprises are deploying AI-driven tools to augment decision-making (corroborated
by findings from Gartner survey as highlighted in Figure 14) – these tools go beyond
the descriptive and diagnostic aspects of traditional analytic tools and address
predictive and prescriptive aspects needed for modern analytics. Gartner estimates
that by 2020, predictive and prescriptive analytics will attract 40% of enterprises’
new investment in business intelligence and analytics. Indeed, enterprises are now
spending more incremental dollars on such AI-driven data science platforms
compared to the legacy traditional BI (Business Intelligence) platforms (Figure 14).
It is worth mentioning that not all analytic tools / techniques that make up a data
science platform are driven by machine learning (other analytic techniques include
graph algorithms, knowledge extraction, and reasoning systems).
Figure 13: Types of AI applications that organizations have deployed or are planning to deploy
Solutions for decision making / recommendation 74%
Process automation 64%
Virtual personal assistant/chatbots 40%
Embedded AI in products 18%
Self-learning mechanical robotics 18%
Other 11%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Source: Adapted from Gartner. Results reflect response to the question: What type of artificial intelligence initiatives is your
organization investigating or developing, or has your organization deployed or is planning to deploy?
25
(44-20) 7134-5420 27 November 2017
Figure 14: Market size comparison: Traditional BI platforms vs. Data science platforms
$ (bn)
8.0 7.3
6.6
6.3 6.2 6.1 5.9 5.7
6.0 5.4
4.8
4.4
3.9
4.0 3.4
3.0
2.2 2.4
2.0
2.0
-
2014 2015 2016 2017E 2018E 2019E 2020E 2021E
Traditional BI platforms Data Science Platforms
Source: Gartner.
While some enterprises are deploying resources to develop machine learning-driven

data science capabilities internally (wherever these projects are deemed viable,
valuable, and vital), most data science delivery models support both on-premises and
cloud-based deployments (given that most large organizations have data residing
both on-premises and in the cloud).
Some of the leading data science platform vendors include players such as IBM,
SAS, SAP, Knime, RapidMiner, Microsoft, Dataiku, Domino Data Lab, Alteryx,
Fico, and Teradata. Gartner estimates data science platform market to grow from
$2bn in 2016 to $5bn by 2021, growing at 15% CAGR over this period.
5 - Remember (Knowledge): Data Discovery and Integration

Data integration and data discovery are important features of an AI’s ability to
function. These correspond to a human’s ability to remember, store and also retrieve
information. Without access to memory, and without the ability to retrieve
information, an AI's ability to locate, process and act on information is restricted.
Understanding data relationships, data structures and storing these relationships, just
as the brain encodes relevant information into synapses during memory formation, is
an iterative and dynamic process.
Data integration tools play an important role in the extraction, warehousing,

population, migration and management of data before machine learning can be
effectively applied. This ultimately supports the construction and implementation of
access to data as well as supporting the delivery infrastructure for a range of data
scenarios. According to Gartner, leading data integration providers include:
Informatica, IBM, SAP, Talen and Oracle among others.
Data discovery tools can be split into four categories: Visual Data Discovery, Smart
Data Discovery, Search-Based Data Discovery and Self-Service Data Preparation.
 Visual Data Discovery is based on an architectural structure that blends data from
a range of sources into an in-memory store, which is linked to an interactive
visualization layer.
 Smart Data Discovery enables the user to automatically locate, project and curate
findings which are relevant to them (e.g. anomalies, correlations, patterns,
clusters and forecasts), without the need to write algorithms or build models.
Smart data discovery essentially encapsulates interactive data visualization,
26
(44-20) 7134-5420 27 November 2017
predictive analytics, pattern matching and machine learning to provide

autonomous decision making support.
 Search-based Data Discovery maps both structured and unstructured sources of
data into a categorized architecture of dimensions, from which users can explore
through a search interface.
 Self-service data preparation tools are often combined with visual data
capabilities to support (through profiling, structuring and enriching) the data
discovery process with the ability to integrate data.
Figure 15: Smart data discovery flow
Prepare Data Locate patterns in the data Represent and share

findings
- Algorithms identify - Natural-language search - Natural language is able

schemas a nd profile data - Algorithms leveraged to to explain results to user
- Recommendations for identify patterns in data - Visualisation support,
data quality enhancement - Relay findings to user in and collaboration
- Capable of use on multi- their language
structured data - Accessible to the
everyday data user
Source: Gartner
The multiple styles of data discovery should soon converge as their unique features
become requirements for all data discovery, as per Gartner. IBM’s Watson embeds
smart data discovery into its analytics capability. Cambridge Semantics solution,
Anzo Smart Data Discovery, offers dynamic access to both structured and
unstructured data, and visualizes this through an in-memory Graph Query Engine.
Figure 16: Forecasts: Data Discovery Categories ($m)

3,500
3,019
3,000
2,500
2,000 1,858
1,465 1,498
1,500
1,000
677 642
451
500 277
0
Visual Data Discovery Smart Data Discovery Search-Based Data Discovery Self-Service Data Preparation
2016 2021
Source: Gartner (April 2017)
27
(44-20) 7134-5420 27 November 2017
The AI application ecosystem

While the gamut of available AI applications is enormous, it is useful to think of the
entire application ecosystem as one that is built on core AI components such as
machine learning, computer vision, natural language processing / generation,
augmented analytics, etc. AI software platforms are built on one or more of these
components depending on the targeted application.
The segmentation provided here Broadly speaking, AI applications can be categorized into three key segments –
is based on a Deloitte study of Product, Process, and Insight.
100+ organizations across 17
industry sectors that
Figure 17: Simplified AI application ecosystem
implemented / piloted
applications enabled by AI
Source: J.P. Morgan. *Not an exhaustive list.
1. Product applications: Incorporating AI in a product or a service to provide end-

customer benefits. Examples include: Amazon Echo (a wireless speaker equipped
with Alexa, a virtual personal assistant), Netflix's recommendation engine, Google’s
search engine, iPhones (equipped with Siri), autonomous cars (and smart robots in
general), etc. From a solution-provider's perspective, offering AI embedded in a
product platform or via a cloud-based service not only enhances the value of the
underlying offering but also creates new business opportunities that can generate
high-margin & recurring revenue streams (Software-driven revenue streams are
much more recurring in nature (pay-as-you-use model or subscription-based) and
carry higher margins vs. hardware-based revenue streams).
Further, traditional hardware-focused companies are now facing stiff margin pressure
driven by the rise of low-cost companies based in EMs such as China, the high cost
of innovation (such as investments in truly flexible display), and uncertainty around
end-demand. Against this backdrop, conventional hardware companies are racing
ahead with investments in AI-related applications (either driven by in-house
development or acquisitions of tech start-ups – Samsung’s Viv acquisition is one
such recent example).
28
(44-20) 7134-5420 27 November 2017
2. Process applications: Incorporating AI into a business's process flow to improve

productivity or automate tasks. Examples include deploying AI-enabled systems for
fraud detection, processing credit card applications, customer service (via chatbots /
virtual conversational agents), surveillance, warehouse management, automated
investment advisors, etc.
3. Insight applications: Aiding operational and strategic decision making based on

insights generated by AI-enabled systems. Examples include customizing sales &
marketing efforts based on insights gleaned from prior customer buying behavior,
automated threat intelligence, predictive maintenance (to reduce operational
downtime) enabled by AI-driven systems, etc. This remains one of the top AI
application initiatives undertaken by enterprises.
29
(44-20) 7134-5420 27 November 2017
What does AI bring to the Enterprise?

Artificial Intelligence is a buzzword in every boardroom, and enterprises want to use
AI for multiple purposes; mainly:
 Drive sales and customer engagement. AI can improve the overall customer
experience in a multi-channel world. Applications include recommendation
systems, virtual assistants, chatbots and voice bots. AI-managed marketing
platforms can automate digital marketing and target high-value customers (for
example, when launching a new product, AI can identify characteristics of
previous high-value customers and the products purchased, plus feedback or
other data, to target the highest probability customers for new products). AI
assistants or agents can also handle higher volumes of customer service issues
(especially repetitive or routine tasks), thus improving customer satisfaction and
supporting customer intimacy overall.
 Operational efficiencies. Within the organization, AI functions are enhancing
quality control, predictive maintenance and prescriptive responses. Efficiencies
can range from reducing operational costs and churn and to increasing
legal/regulatory compliance and improving machine and process performance.
 Enhancing products with embedded AI. Incorporating AI into a product or
service can provide end-customer benefits.
 Generating new insights, and enabling new business models. Better data
analysis is allowing companies to think differently and often more creatively.
Employees are spending less time in routines, and more time thinking of new
products, new go-to-market strategies and engaging with and understanding
customers at a higher level.
Is AI a competitive advantage?
AI is being quickly embedded We believe that earlier adopters of AI functionality will see significant benefits,
into numerous applications and which also speaks to the current urgency in the market for enterprises and
computer functions. Early
adopters should see competitive governments to consider their approach and strategy around AI.
advantages.
Whereas last year most organizations were testing proof of concepts in AI, 2017 has
AI will lead to whole new seen more AI applications moving into production. It is still early stage though, and
business models. we expect to see continued enhancements and fine tuning for these applications to
find their full value. Today many AI applications are automating existing repetitive
tasks, but we see the future as very much about whole new processes or even
business models being created because of the capabilities of AI.
Not only does more automation free up time/effort for businesses to spend on the
more creative aspects of its business, but the insights gleaned from AI can also help
identify new opportunities, new products, new customers and new channels to
market. Over the longer term, AI will be embedded into numerous applications and
computer functions and nearly all enterprises will see some benefits, but we would
argue that the early adopters and fast followers will take more market share, while
the late adopters will implement AI just to keep up and non-adopters become far less
competitive.
30
(44-20) 7134-5420 27 November 2017
How are enterprises thinking about AI? Build, buy or

outsource?
As with most IT solutions, enterprises typically have the choice of several ways to
obtain AI capabilities: build, buy or outsource. The method will be dependent upon
several functions: internal capabilities (the biggest challenge today being the
availability/cost of data science skills), availability and pricing of packaged solutions
currently available, urgency and desired time-to-market, amount of agility and
customization needed, perceived uniqueness/differentiation of the solution
envisioned, and other factors in ROI calculations.
Build
Organizations are likely to build their own AI solutions if they believe it will create
significant differentiation for the business, few off-the-shelf alternatives exist in the
marketplace, they need the higher level of agility and control, and the company has
existing internal IT and data science resources to utilize for the project. We think
mainly larger enterprises will pursue the build option, and some smaller companies
which have few other options than to build.
Buy
Over the mid-term, we believe the bulk of organizations will buy existing packaged
applications for AI. The cost and time-to-market are more favorable; however,
customization (and differentiation) will be lower. Given the early stage of the market,
only a handful of AI solutions are truly available off-the-shelf today, but we believe
software vendors and start-ups are working quickly to fill this gap. In addition, some
organizations will have no choice but to purchase AI functionality because it may be
tied to proprietary data owned by a third-party, or perhaps the computing power is
being rented from a cloud provider (which requires the use of its own AI tools).
Outsource
Outsourcing is typically used by organizations which need a more bespoke solution,
but do not have their own IT resources or appropriate data science skills sets in-house
to build the AI solution. Accenture, Capgemini, Atos and other IT services vendors
are keen to engage their customers on bespoke projects (and for that matter, to
implement packaged solutions, too, where available).
Enterprise AI adoption still in its infancy; growing
digitization and awareness to spur growth
Contrary to the amount of media coverage surrounding AI and its associated benefits,
surveys from several research firms (such as Gartner, McKinsey, etc.) suggest that
enterprise AI adoption is still in its infancy. Many organizations are in the knowledge
gathering / pilot phase of AI adoption, with very few actually using AI in 'live'
enterprise applications / products.
Figure 18: Current stage of enterprise AI adoption
70%
59%
60%
50%
40%
30% 25%
20%
10% 6% 6% 4%
0%
Knowledge gathering Piloting Implementing Deployed / in use Have plans to deploy
/ investigating / today by 2018
developing strategy
Source: Gartner survey. Responses: What is the current stage of artificial intelligence solutions adoption within your organization?
31
(44-20) 7134-5420 27 November 2017
Some of the key challenges impeding the adoption of AI across enterprises include a
shortage of available ‘AI-talent’ (data scientists, machine learning experts, etc.),
difficulty in porting existing infrastructure to AI-ready infrastructure, challenges in
quantifying value derived from deploying AI solutions, and lack of a strategic
directive from top management (C-level management, business unit heads, etc.). In
addition, there are concerns surrounding the ‘black-box’ nature of AI algorithms (the
way ML algorithms interpret data to produce an outcome or a set of outcomes is
often not known), which hinder its adoption (especially in highly regulated
industries, such as financial services).
Figure 19: Key challenges for enterprise AI adoption
Lack of necessary staff skills 54
Defining AI strategy 37
Funding for AI initiatives 35
Identifying use cases for AI 35
Security or privacy concerns 30
Complexity of integrating AI with existing infrastructure 27
Determining how to measure value from using AI 23
Potential risks / liabilities 18
Governance issues 13
Understanding what AI is 11
Other 5
- 10 20 30 40 50 60
Source: Gartner survey results, November 2017. Survey results in response to the question: What are the top three challenges to the
adoption of artificial intelligence within your organization?
Having said this, we believe that growing enterprise digitization, increasing

awareness of AI solutions and their direct/indirect benefits, and the rising
sophistication of AI algorithms will help drive enterprise AI adoption. Further, as the
market matures, we expect consolidation across the AI software vendor landscape
and this should help enterprises select vendors more effectively for AI-related
initiatives, aiding adoption of AI. While adoption may be a point of discussion at this
stage, we believe that AI will be ubiquitous across all the industry verticals and all
digitally mature enterprises in the future.
32
(44-20) 7134-5420 27 November 2017
Leading Enterprise AI Use Cases by Industry

Apart from large technology firms (wherein AI is embedded in the core product /
service offering), industry verticals leading AI adoption include Communication,
Media, and Services (customer analytics, video analytics), Banking & Securities
(Fraud analytics, automated threat intelligence and prevention, automated advisors,
and discovery of investment opportunities), Healthcare (automated diagnostics, real-
time monitoring / pre-emptive warning systems, and drug discovery), Retail (Supply
chain management, warehouse automation, customer analytics, and merchandizing),
and Manufacturing (quality management, yield improvement, and predictive
maintenance). This comes as no surprise as these industries share the common traits
of relatively high digital maturity, access to troves of data, a desire to glean patterns
from historical events as a guide for future decisions, and having a large portion of
tasks that are amenable to automation.
We expect adoption of AI to proliferate across other industry verticals as well, over
the next three to five years – Transportation & logistics, Public safety &
Surveillance (smart cameras), and Education (customized training for individuals)
are some of the key industry verticals that we think likely to witness rapid AI
adoption in the coming years.
Table 4: Sample AI Use Cases Across Different Industry Verticals
Industry as a
% of total
global IT
Industry vertical spend* Sample AI Use Cases
Automated trading & investment discovery, trading strategies,
robo-advisors, voice-based commerce, customer behavior
Banking & Securities 19%
analysis, chatbots for customer services, identity verification,
fraud detection.
Smart surveillance, threat detection, Smart Cities and Utilities,
Government 17% AI-enhanced and personalized education and training, chatbots
for info distribution and citizen engagement.
Predictive maintenance, machine learning driven insights for
Manufacturing & Natural Res. 17%
yield improvement, optimization.
Customer analytics, forecasting and customer demand trends,
Comms, Media & Services 16% video analytics, computer vision interactivity (e.g. in video
games and other immersive media).
Customer analytics, forecasting, anticipating demand trends,
reducing revenue churn, supply chain management,
Retail 7%
warehouse automation, chatbots for customer services,
conversational commerce.
Claims management and fraud detection, analyzing customer
behavior and reducing revenue churn, automated underwriting,
Insurance 7%
pricing, conversational platforms for customer services,
complying with regulations, trading strategies.
Enhanced supply-demand management based on AI-driven
analytics, predictive maintenance, dynamic pricing based on
Utilities 5%
consumption analytics (provided by smart meters, for example),
chatbots for customer service.
Diagnostics, image analytics for early disease detection, drug
Healthcare Providers 4% discovery, patient monitoring (pre-emptive warning systems),
personalized medicine and treatment.
Self-driving vehicles, Advanced driver assistance systems,
Transportation 4% personalized content delivery / productivity enhancement tools
used by providers of transportation services
Customized / adaptive learning programs, skill upgrade
Education 2% programs based on real-time insights gleaned from job market
trends.
Warehouse automation, inventory management based on
Wholesale Trade 2%
insights gleaned from demand analytics, autonomous delivery.
Source: J.P. Morgan, *Gartner, Capgemini.
33
(44-20) 7134-5420 27 November 2017
The AI-spending opportunity

It is important to note that AI is not a product offering in itself – it is essentially a
model (a set of software tools / algorithms) that helps identify patterns and
associations in large amounts of data. Further, as we have discussed previously, AI
can either be embedded in hardware products or software platforms or be deployed
as a component in a larger software process implementation. Hence, rather than
focusing on AI, it is helpful to talk about the markets / applications enabled by AI,
which can then be assigned a dollar value. Current AI market forecasts vary widely
depending on how one defines the scope of applications / end-markets considered for
market sizing. However, the common theme underpinning all these forecasts is the
high-growth nature of AI-enabled markets.
AI-focused spending to witness sharp growth in the coming

years; Software / Services to take the biggest slice
IDC forecasts spending on AI-focused hardware, software, and services to reach
$58bn by 2021, up from ~$12bn in 2017, making this one of the fastest-growing
technology segments (growing at nearly 50% ’17-’21 CAGR). The components of
this AI-focused spend include:
 AI applications - applications that learn, discover, and make recommendations /

predictions or core AI components.
 AI software platforms - tools built on core AI components that enable AI-driven
use cases.
 AI-related IT & business services – for example: consulting / implementation
services provided to an enterprise for deploying AI-related technologies.
 AI-dedicated server and storage spending (hardware).
It is important to note that this spending figure excludes internal enterprise R&D
investments & AI deployments, capital spent on talent acquisition, M&A, and private
financing. These excluded components are meaningful in size. As noted, McKinsey
highlighted that roughly $26-39bn was spent on AI-related technologies in 2016.
Figure 20: Global AI-focused spending* ($, bn)

70.0
57.6
60.0
50.0
48% CAGR
40.0
30.0
20.0 12.0
5.3 7.5
10.0
-
2015 2016 2017E 2021E
AI-focused spending*
Source: AI-spending estimates from IDC. *Includes AI-focused spending on hardware, software (applications + software platforms),
and services (IT consulting & system implementation).
34
(44-20) 7134-5420 27 November 2017
To put spending size into perspective, AI growth projections of ~50% CAGR

through 2020/21 are more than twice the growth rate of other high growth tech sub-
sectors (such as Big Data 23% and Cloud 20%). By 2020, AI-focused spending will
be about the same size as the security software market.
Figure 21: AI market growth compared to other high-growth technology segments

250
Approximate 2020 market size ($, bn)

200 Total cloud, 20%
150
100
AI-focused spending,
Big data, 23% 50%
50 Security, 8%
0
0% 10% 20% 30% 40% 50% 60%
Approximate 2016-2020 CAGR

Source: Bloomberg, IDC, J.P. Morgan.
As highlighted in the figure below, software (applications and software platforms)

accounts for ~50% of the total AI-focused spending. Services (IT consulting and
system implementation) represent the second largest spending category and IDC
expects spending in AI-focused services to continue growing at 50%+ CAGR over
the next four years. On the other hand, hardware (compute & storage infrastructure)
is expected to remain the smallest portion of total AI-focused spending. Of note, we
expect growth in hardware spending to continue to be impacted by component price
deflation over the long term (i.e. decrease in per unit storage and computing costs).
We believe that the AI-spending opportunity opens up meaningful avenues of
revenue growth for enterprise software and IT services vendors who take the initial
lead in addressing enterprise AI needs.
Figure 22: Components of AI-focused spending (2017E)

$ (bn)
14.0
12.0 Software spending comprises bulk
of the total AI-focused spending 2.3
10.0
8.0 3.7
6.0 12.0
2.3
4.0
2.0 3.7
-
Software Software platforms Services Hardware Total
applications
Source: Adapted from IDC.
35
(44-20) 7134-5420 27 November 2017
AI-focused spending still a small portion of overall

enterprise IT spending
The enterprise AI-focused spending, though witnessing very strong growth, accounts
for a very small portion of the overall enterprise IT spending, growing from ~0.3%
in 2016 to ~1.8% by 2021. This makes sense, as the bulk of the enterprise IT
spending is dedicated toward ‘run-the-business’ traditional applications and digital
transformations (cloud, traditional analytics, etc.) that are not AI-driven. However,
we believe that the AI-portion of enterprise IT spending will expand in the future as
AI-led innovation transforms the way enterprises operate, driving an increasing
number of applications (a ‘transformative AI application’ today is tomorrow's ‘run-
the-business’ application).
Figure 23: AI-focused spending as % of overall enterprise IT spending

2.0% 1.8%
1.5%
1.0%
0.4%
0.5% 0.3%
0.2%
0.0%
2015 2016 2017E 2021E
AI-focused spending as % of total enterprise IT spending
Source: AI-spending estimates adapted IDC. *Includes AI-focused spending on hardware, software, and services. **Enterprise IT
spend data sourced from Gartner.
Will AI boost overall IT spending?

We believe AI along with many other aspects of digital transformation (like cloud,
IoT, big data, blockchain, etc.) are boosting IT spending by corporates, governments
and even individuals. However, this is likely already captured in estimates for IT
spending growth. Gartner predicts Global Software spending will grow at an 8.3%
(constant currency) CAGR through 2021; which is around 2.5x global GDP growth
forecasts (JPMe 3.2%). IT Services are also expected to grow faster than GDP at
4.6% CAGR. Even including slower growth subsectors, global IT spending is
forecast at 3.0% CAGR to $4.5 trillion by 2021. See Table 5 below.
Table 5: Global IT Spending Forecast by Gartner (constant currency)

2017 IT 2017 2018 IT 2018 2021 IT CAGR (%) cc
(USD billions) spend Growth Spend Growth Spend 2017-2021
Software 392 8.5% 425 8.5% 539 8.3%
IT Services 1,038 4.3% 1,083 4.4% 1,243 4.6%
Devices 764 5.4% 793 3.8% 817 1.7%
Data Center Systems 194 1.8% 196 0.9% 197 0.4%
Communication Services 1,593 0.8% 1,613 1.3% 1,686 1.4%
Total Global IT Spending 3,980 3.3% 4,110 3.3% 4,481 3.0%
Source: Gartner, October 2017.
36
(44-20) 7134-5420 27 November 2017
We would argue, however, that AI functionality (direct or embedded) will take

AI functionality to take market market share within the IT budget, and therefore vendors that are ahead of the curve
share. in embedding AI will benefit. The AI platform vendors have taken an early
competitive lead; however, we believe there is ample opportunity both for
established traditional IT enterprise vendors to embed AI into their core
offerings and for a variety of new, emerging players to offer creative solutions
(from niche and vertical-specific to even broad-scope industry-disrupting ideas).
Think how Salesforce promoted cloud well before the incumbents, or how Amazon
is changing retail, or Uber is disrupting transportation. We expect AI will stimulate
similar opportunities for innovative industry-disruptors.
IT spend comes from the central Furthermore, we believe that the traditional enterprise IT budget (from the CIO's
IT budget as well as from Lines office) does not capture the entire portion of corporate spend on IT. Increasingly the
of Business.
lines of business are directly purchasing IT in the form of vertical applications. The
marketing department and huge budgets around digital marketing are probably the
most obvious example, but payments, customer service and areas of automation are
other examples. In fact, one could argue that nearly all companies are becoming IT
companies at their core.
Leaders in digital transformation will also be leaders in adoption of AI

Across industries, we believe those corporates addressing their own digital
AI and Digital Transformation transformation now will also be the leaders in the adoption of AI. Certainly, the pure
will go hand-in-hand.
digital companies have already shown a lead in using AI (Google, Amazon, Uber,
Netflix, etc.), and the faster other industries digitize, the faster they can take
advantage of the insights and efficiencies of AI.
37
(44-20) 7134-5420 27 November 2017
Mapping the Vendor Landscape

In the section, we will discuss a variety of vendors utilizing AI and ML; however, we
acknowledge that the field is so wide and so quickly advancing, that it is impossible
to do it full justice. There are already over 2,000 companies calling themselves AI
vendors, and Gartner estimates that by 2020 nearly every new software product and
services will feature artificial intelligence.
Within our global technology/internet stock coverage, we believe the following

companies are best positioned to benefit from Artificial Intelligence.
Figure 24: J.P. Morgan coverage companies which stand to benefit from the shift to AI
Companies best prepared for the
Region Technology Sector AI function / use Analyst
shift to AI
AI platforms, AI-based analytics, object/pattern
European Software SAP, Dassault Systèmes, Hexagon Stacy Pollard
recognition, predictive maintenance, smart cities.
Advisory & education, creation and solution design,
Europe European IT Services Capgemini, Atos Stacy Pollard
deployment and integration.
MindSphere cloud IoT, digital factory, robotics, industrial
European Industrial Tech Siemens Andreas Willi
optimization.
AI platform, predictive analytics, automation bots, Mark Murphy /
US Enterprise Software Salesforce, Microsoft, Adobe
speech recognition and NLP, image recognition. Sterling Auty
AI platform, analytics/data discovery, chatbots, natural
US IT Services IBM, Accenture, Cognizant Tien-Tsin Huang
language, computer vision, advisory & implementation.
America
Robots as digital assistants, real-time customer data to
US Applied & Emerging Tech NICE, Cognex Paul Coster
chatbots, machine vision.
Search, cloud, home assistants, autonomous vehicles,
US Internet Google, Amazon, Facebook Doug Anmuth
photos, news feed…many others.
AI Platforms, autonomous driving, conversational (NLG, Alex Yao / Gokul
Asia Asian Internet / software Baidu, Tencent, Alibaba
voice), computer vision, customer analytics, etc. Hariharan
Also see Appendix 2, page 68 for more company profiles.
AI: Is this a winner-takes-all market?

Not at all. AI adoption is evolutionary, and although vendors like Google, Facebook,
Baidu, Apple, Microsoft and Amazon may have taken early advantage of their large
data sets and established platforms, the large enterprise software vendors (like SAP,
IBM, Oracle, Salesforce, Sage, etc.) are gradually embedding AI into multiple
aspects of their offerings. In addition, we expect certain revolutionary aspects of AI
to bring to market new and/or specialist vendors (hundreds are already in the
marketplace, and we expect to see many more as individual AI functions mature).
 Existing software vendors are gradually embedding AI functions into various

aspects of their technology. Large enterprise vendors like SAP, IBM, Microsoft,
Oracle, Salesforce, Sage and others already have a handful of AI offerings, and
these look sure to multiply over time. We believe they are well positioned to
Evolve with AI capabilities, or promote AI functionality within enterprises because: they are known brands,
risk being left behind
which already understand and can contextualize the enterprise-generated data,
and they can link automation back into the workflow.
 Business Intelligence and Data Analytics will evolve to become increasingly
AI-driven, and indeed, we believe that AI is transforming the BI and Analytics
market. We expect to see the gradual decline of traditional BI, in favor of modern
BI and Analytics platforms and functions which include predictive and
prescriptive analytics.
38
(44-20) 7134-5420 27 November 2017
 Traditional CRM vendors are at risk if they are not evolving with AI (and
advanced customer understanding and engagement). The same goes for nearly
every category of enterprise software, from BI and CRM to supply chain and
ERP (for example, automated expense matching).
 AI platforms (including AI PaaS) have around 20% (Figure 22) of AI spending
share today and are frequently the building blocks for companies designing their
own AI applications.
 Industry-specific and function-specific AI are likely to be of great interest to
clients looking for productized or nearly out-of-the box solutions. The early days
of most technology cycles are characterized by broad innovation and
fragmentation – which is where we are today (as opposed to consolidation and
vendor dominance by a small number of players, which happens later cycle).
Build, buy or partner?

Apart from in-house development of AI capabilities, vendors across different
industry verticals have also been active in acquisition of AI-related IP and talent
(often at a meaningful premium) in order to complement in-house efforts and
accelerate the time-to-market for AI related offerings. This is especially true for
markets that are witnessing rapid disruption driven by AI, such as technology,
automotive, and healthcare. As per CBInsights, the 10 largest tech companies in the
US have invested in 80 AI startups and acquired 50 AI companies in the last five
years. AI-related deal activity is at an all-time high, with an estimated $7bn in annual
funding in 2017 (up from ~$5bn in 2016). Not surprisingly, Google, Apple, Intel,
Microsoft, Facebook, salesforce.com, and Twitter feature among the top AI acquirers
in the recent past (see Appendix 3 for some recent AI acquisitions). Furthermore, we
expect to see numerous partnerships around artificial intelligence, with different
firms leveraging their relative competitive advantages. For example Amazon and
Microsoft recently partnered around Gluon (an open-source software tool for
developers to build AI and ML apps), and SAP and NVIDIA are collaborating using
NVIDIA’s DGX-1 (an integrated hardware and software supercomputer) to offer
machine learning in SAP’s applications (such as SAP Brand Impact, Accounts
Payable, and Customer Satisfaction).
Figure 25: Artificial Intelligence: Annual Funding History

5000 800
4500 700
4000
600
3500
3000 500
2500 400
2000
300
1500
200
1000
100
500
0 0
2012 2013 2014 2015 2016
Disclosed Funding ($m) Number of Deals
Source: Adapted from CBInsights.
39
(44-20) 7134-5420 27 November 2017
Categorizing AI vendors
We have tried to categorize vendors into several functional areas of AI (while noting
that many vendors cross functions and thus may fit into multiple categories). We also
acknowledge that this is not a comprehensive list, but rather a substantial sampling to
make investors aware of the many vendors and types of function and application that
are involved in the AI arena.
Table 6: List of AI Vendors, Products and Software
Category Description / Application Sample Vendors
AI Platform-as-a Service Still in early adoption phase; with top three vendors dominating - Amazon Web Services (c.40% mkt share), Microsoft Azure
tough to challenge the hegemony. Machine Learning, and Google, clear public cloud leaders. Others
include IBM, Alibaba Aliyun, Oracle, Baidu, etc.
AI Platforms and deep learning AI platforms provide users with a toolkit to build intelligent TensorFlow from Google, IBM PowerAI IBM Watson Platform,
frameworks/libraries applications. The platforms may combine decision-making Google Cloud Prediction API, AWS/MS Gluon, Microsoft CNTK,
algorithms with data. Amazon ML, Infosys Mana, Wipro HOLMES, Rainbird, Ayasdi
Traditional enterprise software These vendors seem likely to embed AI into multiple aspects of SAP (with Leonardo), Microsoft, Oracle, Salesforce (and Einstein)
vendors their software offerings. Adobe Sensei and Cloak.
Data Analytics Vendors Business intelligence and analytics vendors are creating AI/ML BI vendors: SAS, SAP, Oracle, IBM, Microsoft, Tableau,
tools to modernize their analytics solutions, especially on areas MathWorks, Qlik, Palantir, Fico, MicroStrategy, etc.
such as predictive / prescriptive analytics. Data integration is Data integrators: Informatica (data integration, quality, and
also an important component. management), IBM InfoSphere, SAP, Talen, Oracle, SAS,
Microsoft, Cisco, Denodo, etc.
Specialist AI / Vertical-focused / Vertical-specific expertise will be a clear differentiator. We Clarifai (automated photo tagging), Creative Virtual and many
Niche players believe that significant numbers of niche and vertical-focused other virtual customer assistants, Ravel Law (legal assistant), x.ai
will come to market in coming years, and will attract relatively (bots that negotiate via email to find a time/place for a meeting),
smaller, but loyal user groups. Clients will choose these Dassault Systèmes (in CAD and also fleet mgmt.), Sage’s Pegg
vendors/products for their best-of-breed functionality, and likely accounting bot, and numerous others.
off-the-shelf availability and quick implementation and ROI. Uber and Waze for real-time traffic and routing.
Industrial applications, IoT+AI, AI and IoT are symbiotic, because IoT provides the large ThingWorx from PTC, Siemens MindSphere, SAP Leonardo,
IT/OT integration and robots volumes of data that AI technologies require, and without AI Oracle IoT Cloud Service, Mosaic from LTI, ABB Industrial IoT,
apps, IoT data is far less useful. These applications typically GE Predix, Honeywell Industrial IoT, Schneider Electric, Hexagon,
focus on operational optimization (quality control, predictive Software AG (Cumulocity IoT platform), Amazon IoT, MS Azure
maintenance - leading to prescriptive responses from AI). IoT Suite.
AI-enhanced customer-facing These applications are focused on improving the overall Kore.ai (all-in-one chatbot PaaS), Openstream, NextIT, Aspect,
channels, Conversational customer experience – in a multichannel world, they aim to be Amelia from IPsoft,
platforms and Chatbots the gateway to the customer (potentially disintermediating
others).
IT Services IT Service vendors design and implement AI functions for Accenture, IBM, Capgemini, Atos, Cognizant, Tata, etc.
enterprises, especially custom projects. Ultimately, IT Services
vendors will democratize and facilitate the proliferation of AI
knowledge and best practices.
Hardware AI specialized compute / networking / storage Key AI chip vendors include Nvidia (GPUs), Intel (x86 platforms
with accelerators), AMD (CPUs/GPUs), Xilinx (FPGAs), Broadcom
(ASIC), etc. Some of the prominent AI chip startups include
Graphcore, Cambricon, Wave Computing, Mythic, and Cerebras.
Apart from compute, AI applications are also impacting the
networking and storage elements of the datacenter, with the focus
on high performance and low latency.
Source: J.P. Morgan; company data from many various sources.
40
(44-20) 7134-5420 27 November 2017
AI Platform-as-a-Service
AIPaaS is still in the early adoption phase, but progressing quickly. The top three
vendors (Amazon, Google and Microsoft) dominate today, and it may be tough to
challenge the hegemony.
AI Platform-as-a-Service Vendors
 Amazon Web Services (c.40% mkt share), Microsoft Azure Machine Learning,
and Google are the clear public cloud leaders.
 Others include IBM, Alibaba Aliyun, Oracle, Baidu, etc.
AI Platforms and deep learning frameworks/libraries

AI platforms provide users with a toolkit to build intelligent applications. The
platforms may combine decision-making algorithms with data. Some require
knowledge of complex AI structuring and coding, while others offer pre-built
algorithms and simple workflows and can include drag-and-drop modeling and visual
interfaces. IDC valued the AI software platform market at $1.6bn in 2016, going to
$8bn by 2021.
Figure 26: Cognitive/AI Software Platforms market share, 2016 (mkt size $1.6bn)
IBM
10% Palantir Google
4% 2% Digital
Reasoning
1%
IPsoft
1%
Nuance Comms
1%
CognitiveScale
1%
Expert System
1%
Other
78% CustomerMatrix
1%
Source: IDC.
Deep learning frameworks are symbolic math libraries, systems for building and
training neural networks to identify patterns and correlations. These frameworks are
mainly open source, and there are many iterations and layers.
AI Platforms and Framework Vendors

 IBM PowerAI IBM Watson Platform and Analytics, IBM Caffe
 Palantir data analysis (and visualization)
 GoogleTensorFlow, Google Cloud Prediction API, API.AI (natural language
interactions, acquired by Google)
 Amazon: Amazon ML, AWS Machine Learning API, DSSTNE (Amazon’s Deep
Scalable Spares Tensor Network Engine), AWS/MS Gluon
 Microsoft Azure Machine Learning workbench and model management, CNTK
(computational network toolkit), DMTK (MS Distributed Machine Learning
Toolkit), Gluon (with AWS)
 Apache Spark MLlib, Apache Mahout, Apache Singa, BigDL focused on
ApacheSpark and only works on Intel chips.
41
(44-20) 7134-5420 27 November 2017
 NVIDIA: DIGITS (NVIDIA Deep Learning GPU Training System), NCCL

(NVIDIA Collective Communications Library), NVIDIA Caffe
 Others: Digital reasoning, IPsoft, Nuance, CognitiveScale, Expert System,
CustomerMatrix, Alibaba Aliyun, Baidu Paddle, Caffe2, Caffe OnSpark, Infosys
Nia, Wipro HOLMES, Rainbird (visual user interface, natural language
processing, analytics & insights), Premonition.ai - litigation database, Wit.ai Bot
Engine, Ayasdi (big data analytics and modeling), Vital A.I – agent platform,
Meya Bot Studio, MindMeld (conversational AI for voice/chat assistants), KAI
conversational AI, Receptiviti (emotional intelligence, bots, marketing and
engagement)Veles, H2O.ai, Neon, Wise.io, Deeplearning4j (released under
Apache License 2.0), ND4J, Torch, Pytorch (open sourced by Facebook), DyNet,
MxNet, OpenBLAS, Distributed Frameworks, Bazel, etc.
Software coding languages:

Typically open source, these are some of the programming languages most
frequently used in the AI field.
 Python, Java, Lisp, Prolog, C++, MATLAB, Scala, Julia, R, Haskell, AIML, among others.
Traditional enterprise software vendors

Traditional enterprise software vendors are embedding AI capabilities into multiple
aspects of their software offerings. They are well-positioned to promote AI
functionality within enterprises because: they are known brands, which already
understand and can contextualize the enterprise-generated data, and they can link
automation back into the workflow.
 SAP (Leonardo)
 Microsoft
 IBM (Watson)
 Oracle
 Salesforce (Einstein)
 Adobe Sensei and Cloak
AI-based features already include virtual assistants, bots, advanced analytics and
numerous other specialist features. See individual vendor profiles for details.
Figure 27: Global Enterprise Software Market Share, 2016

Microsoft
16%
Oracle
9%
Others IBM
55% 8%
SAP
6%
Salesforce
2%
Adobe Vmware
2% 2%
Source: Gartner.
42
(44-20) 7134-5420 27 November 2017
Data Analytics and BI Vendors

Data analytics is one of the most natural places to embed AI. Business intelligence
and analytics vendors are creating AI/ML tools to modernize their analytics
solutions, especially on areas such as predictive / prescriptive analytics. Traditional
BI functions will see declining market share, and vendors who fail to modernize will
quickly be left behind.
Figure 28: Largest Business Intelligence Software Vendors

SAP
Others 16%
23%
Oracle
MicroStrategy 12%
2%
Fico
2% Palantir
3%
Qlik SAS
4% MathWorks 11%
4%
Tableau
5% Microsoft IBM
9% 9%
Source: Gartner.
Within the BI & Analytics Software Market, Data Science Platforms are set to grow
around 13% CAGR through 2021, while the overall BI Software Market should grow
8% (see Figure 29 below).
Figure 29: Data Science Platforms are growing faster than overall BI & Analytics SW
Source: Gartner.
43
(44-20) 7134-5420 27 November 2017
Data and its role in shaping the competition landscape

As a reminder, we refer to ML-driven intelligence as AI in this report. In this context,
data is of paramount importance for AI algorithms and applications. By its very
nature, ML is very data-hungry, as it entails fine tuning of several model parameters
which require vast and diverse training datasets to yield an effective model output.
An ML-driven algorithm is only as good as the data it is trained on. Without
sufficient, clean, and diverse datasets, ML algorithms are of limited use (and in fact,
using ML algorithms trained on ‘immature’ datasets can result in sub-optimal /
meaningless output).
Given the importance of data in the emerging AI-driven economy, it is natural to

assume that platform owners (such as Amazon, Google, Apple, Facebook, Microsoft,
Baidu, Alibaba, etc.) have an edge compared to competition. We see increased
evidence of these platform owners exerting influence in areas outside their primary
domain of operation and we believe that data lies at the heart of this transformation.
Leading platform owners benefit not only from the learning-curve effect driven by
better data access (which translates to better AI capabilities) but also by positioning
their businesses around technologies that leverage the value generated from this data.
Data storage (database) vendors are benefitting from the massive increase in data
generation – in parallel to AI. Several top DB vendors include:
 Oracle 12c and MySQL
 Microsoft SQL Server
 IBM DB2 and Informix
 SAP HANA and Sybase
 Teradata
 Amazon SimpleDB and Dynamo DB
The Hadoop and Spark frameworks for big data analytics are also worth a
mention. A few top vendors include: Cloudera, Hortonworks, Pivotal, and numerous
others.
For a longer list and description of technology tools used in Big Data Analytics, we
recommend a read of our colleagues' report: Big Data and AI Strategies by Marko
Kolanovic and Rajesh Krishnamachari. This report dedicates around 80 pages to
explaining the granularity of Machine Learning Methods, 20 pages to data
technology solution vendors (including databases, ETL, Hadoop, infrastructure,
management, security, and ML tools, and another 50 pages listing various big data
sources by industry.
44
(44-20) 7134-5420 27 November 2017
Data integration tools play a role

We also note that data integration tools will play a role in the harvesting of big data
for AI functions. While the data integration tool market is beyond our scope for this
report, it is useful to be aware of some of its primary functions and vendors.
Data integration tasks

 ETL – Extraction, Transformation and Loading.
 Data migration – moving data to new platform or upgraded application.
 Data acquisition for business intelligence, analytics and business warehousing -
extracting data from operational and other systems for the purpose of analytics,
predictive modeling in-memory data base management systems (definition,
creation, querying, update and administration of databases), and data
warehousing (central repositories of integrated data, often from multiple different
sources).
 Sharing data across multiple organizations, for example, through a supply chain
or with customers and other business partners. Also, data integration tools for
frequently need to manage enterprise data presiding in multiple locations, such as
pivoting between cloud and on-premises.
 IoT and enterprise digital transformation are boosting the need for data
integration and analytics.
Leading Data Integration Vendors

 Informatica (data integration, quality, and management), IBM, SAP, Talen,
Oracle, SAS, Microsoft, Cisco, Denodo, Information Building, Attunity, Adeptia
and others.
Behind the scenes, Hadoop (open-source software) supports the processing and
storage of large data sets in distributed computing environments. Cloudera and
HortonWorks are the main big data vendors, as well as AWS Elastic MapReduce
Hadoop Distribution, Microsoft Hadoop Distribution, MapR Hadoop Distribution
and IBM InfoSphere Insights.
Specialist AI / Vertical-focused / Niche players

Vertical-specific expertise will be a clear differentiator in our view. We believe that
significant numbers of niche and vertical-focused will come to market in coming
years, and will attract relatively small, but loyal user groups. We expect clients to
choose these vendors/products for their best-of-breed functionality, and likely off-
the-shelf availability and quick implementation and ROI. There are numerous
vendors offering specialist applications, and we expect to see continued significant
innovation by hundreds, if not thousands, of start-ups and existing AI vendors.
Some interesting vendors

 Clarifai (automated photo tagging),
 Creative Virtual and many other virtual customer assistants,
 Ravel Law (legal assistant),
 x.ai (bots that negotiate via email to find a time/place for a meeting),
 Dassault Systèmes (in CAD and also fleet mgmt.),
45
(44-20) 7134-5420 27 November 2017
 Sage’s Pegg accounting bot, and numerous others.

 Uber and Waze for real-time traffic and routing.
Industrial applications, IoT+AI, IT/OT integration and robots

AI and IoT are symbiotic, because IoT provides the large volumes of data that AI
technologies require, and without AI apps, IoT data is far less useful. These
applications typically focus on operational optimization (quality control, predictive
maintenance - leading to prescriptive responses from AI). See also the separate
section on AI Brings Life to IoT.
Sample vendors:
 ThingWorx from PTC
 Siemens MindSphere
 SAP Leonardo
 Oracle IoT Cloud Service
 Mosaic from LTI
 ABB Industrial IoT
 GE Predix
 Honeywell Industrial IoT
 Schneider Electric
 Hexagon
 Software AG (Cumulocity IoT platform)
 Amazon IoT
 MS Azure IoT Suite
The IoT Platform vendor landscape is crowded, and as yet, there appears to be no
clear – differentiated – market leader. The market is indeed still emergent and its
evolution and leadership will depend on the ability vendors have to provide clear
differentiation through a complete horizontal solution, specialist vertical market
knowledge, and a clear ecosystem of partners. We have outlined below a non-
exhaustive table of IoT platform providers.
46
(44-20) 7134-5420 27 November 2017
Table 7: Sample IoT Platform Providers
IoT Platform Vendor Description/Components Vertical Markets Areas of Application Go-To-Market Partners (Examples)
Builds on its IaaS capability and extensive
cloud infrastructure. Services in the stack:
Asset Management,
AWS message broker (or Device Gateway), Automotive, Intel, Samsung – Hardware
Predictive Maintenance,
Amazon - AWS IoT AWS IoT rules engine, Device Shadows Healthcare, Twilio, Splunk – Software
Personal Device
(digital twin implementer), Device Registry Smart City Accenture, Deloitte – Services
Integration
and IoT Console Services.
Built on a Pivotal foundation/Cloud foundry,

Cisco, Intel – Hardware
supplemented via a microservice architectural Industrial Internet
Energy, AT&T, Vodafone – Communications
method. Leverages interconnectivity, Applications, Asset
GE - Predix Manufacturing, Apigee, Pivotal – Software
‘intelligent’ machines, as well as analytics for Management, Operations
Transportation Equinix – Infrastructure
industrial markets. GE is aiming to roll out Optimisation
Genpact, HCL Technologies - Services
vertical specific applications.
IBM has evolved from its Bluemix IoT

Foundation (launched in 2014) into today’s
Watson IoT portfolio and sees IoT value in
the cognitive analytics. The stack begins with
Cisco, Arrow Electronics– Hardware
Bluemix IoT Zones, and leads onto various
Manufacturing, Orange, Verizon – Communications
IBM - Watson IoT options, such as solutions for manufacturers Asset Management,
Automotive, Cloud Foundry, Cisco Jasper – Software
Platform (e.g. Product Line Engineering and Manufacturing
Building Management IBM GBS, HCL Technologies/Deloitte -
Rhapsody, among others). Asset
Services
management solutions (e.g. Trirga & Maximo
Asset Management), and cloud capabilities
(e.g. SoftLayer - IaaS, IBM Watson -
cognitive analytics).
Built from an initial operating system and

includes a range of technology components:
Azure IoT Hub (designed specifically for IoT),
Azure Stream Analytics, Azure Data Lake, Intel, Liberum – Hardware
Manufacturing, Predictive Maintenance,
Microsoft - Azure IoT Azure Machine Learning, Gateway SDK, Hadoop, Cisco Jasper – Software
Smart Buildings, Device Management,
Suite Microsoft Dynamics & Power BI. Supports Accenture, Avanade - Services
Smart Transportation Remote Monitoring
end-to-end model with the Azure Logic Apps
integrating back-end applications (e.g.
Oracle, SAP, Salesforce) with the Azure IoT
Suite.
PTC’s capability evolved through internal

R&D and acquisitions (ThingWorx, ColdLight, ARM, National Instruments – Hardware
Axeda, Kepware & Vuforia). Comprised of Manufacturing, Asset Management, Aeris, Verizon – Communications
PTC - ThingWorx core modules: Foundation, Analytics, Utilities Smart Cities, Predictive Analytics, API GE, SAP – Software
& Studio integrated into the ThingWorx Thing Supply Chain management, Amazon, Microsoft – Infrastructure
Model (digital twin) – the data store holding CSC, ITC Infotech - Services
business logic for assets and data streams.
The stack begins with Hana Cloud Platform,

including Hana Integration Services and SAP
Process Orchestration. IoT Client & IoT OSIsoft, Telit – Device Data
Intelligent Edge also supports the platform’s Management
capabilities. SAP leverages IoT to enhance Cisco Jasper, Vodafone – Connectivity
Manufacturing, Connected Assets (e.g.
SAP – SAP HANA IoT its core business (S/4 HANA, SAP ERP) Management
Transportation, Fleet Management),
Foundation applications and networks (Ariba) with IoT Hadoop, Apigee – API Management
Logistics Business Networks
generated data & analytics. Applications are Accenture and others – System
built to support digitalization of the enterprise Integrators
(e.g. SAP Predictive Maintenance, SAP
Networked Logistics Hub, SAP Asset
Intelligence Network).
Source: Gartner, J.P. Morgan
47
(44-20) 7134-5420 27 November 2017
AI-enhanced customer-facing channels

These applications are focused on improving the overall customer experience – in a
multichannel world, they aim to be the gateway to the customer (potentially
disintermediating others). They can include conversational apps, recommendation
systems, virtual customer assistants, chatbots, and voice bots.
Key chatbot components include: Front-end interface, NLP / ML framework,

Dialogue management, and Back-end interface.
Customer facing AI systems allow people to more naturally interact with the digital
world, and this is progressing even further with augmented reality, virtual reality and
digital twins – frequently linked to AI computer vision (for example, to help guide
mechanics fixing machines or stroke patients to perform their physiotherapy
exercises).
 Customer-facing AI vendors: Kore.ai (all-in-one chatbot PaaS), Openstream,

NextIT, Aspect, Amelia from IPsoft.
 Recommendation and search engines: Netflix, Amazon, Facebook newsfeed,
Google advert selection, Baidu Search, etc.
 Digital assistants, often embedded in devices, search engines or commercial
channels, include: Apple Siri, Amazon Echo (Alexa), Samsung Viv & Bixby,
Microsoft Cortana, Apple HomePod, Google Now, Google Assistant, Google
Home, Baidu Duer and Baidu Brain (voice & facial recognition).
 Messaging channels with AI chat include: Facebook Messenger, Slack, Hipchat,
WhatsApp, Tencent WeChat, Twitter, Kik, LINE, Skype for Business.
 Chatbots from enterprise vendors such as SAP, Oracle, Salesforce, and others
are also introducing chatbot capabilities. Sage has accounting chatbot Pegg.
IT Services
IT Service vendors assess, select, design and implement AI functions for enterprises,
especially custom projects. The consulting and SI spending for AI, including Smart
RPA (robotic process automation), is today valued at around $2-3bn, but growing
quickly to an estimated $29bn by 2021 (source: Gartner). Consulting is the largest
component of spend today (approx. 2/3 of spend), due to the early stage of
technology, and typical need to create bespoke solutions. However, as the industry
grows and matures, Implementation should be around 2/3 of spend by 2021, while
Consulting drops to just 1/3 – although still probably 4x larger in absolute terms.
Ultimately, we expect IT Services vendors to democratize and facilitate the

proliferation of AI knowledge and best practices across enterprises. They play
several roles along the way: advisory & education, bespoke creation and solution
design (including security and risk management), deployment and integration into
the existing software ecosystem, then ongoing maintenance and enhancements.
Some key IT services vendors focused on AI include:
 Accenture
 Capgemini
 Atos
48
(44-20) 7134-5420 27 November 2017
 Infosys
 Wipro
 IBM
 TCS - Tata Consulting Services
 Cognizant
Intelligent things/devices
We believe that broad-based diffusion of AI applications will result in the migration
of ‘intelligence’ from the datacenters to end-devices (such as smartphones, PCs, cars,
home appliances, speakers, or IoT end-points in general) as not every AI-enabled
decision will be computed in the datacenter. For example, an autonomous car needs
capabilities of instantaneous decision making based on real-time feedback of sensory
inputs (cameras, radars, etc.); or smart surveillance via a network of cameras will
need capabilities of facial recognition / video analytics for near-real-time decisions.
We expect this migration of intelligence from the ‘core’ of the network to the ‘edge’
to create meaningful opportunities for hardware vendors. Some examples of such
intelligent devices include security cameras from HikVision, smart cameras for
industrial applications (from vendors such as Basler, Cognex, etc.), cars equipped
with autonomous driving capabilities, smart speakers, smartphones, consumer and
industrial robots, etc.
49
(44-20) 7134-5420 27 November 2017
Figure 30: Softbank's Pepper Figure 31: Sawyer from Rethink Robotics
Source: Softbank Source: Rethink Robotics
Figure 32: Relay – A hotel butler robot from Savioke Figure 33: Amazon Echo with Alexa imbedded
Source: Savioke
Source: Amazon
Migration of intelligence from the core to the edge creates meaningful

opportunities for semiconductor vendors
Any AI-enabled IoT device (be it smartphones, cars, cameras, or speakers) will need
capabilities to sense its surroundings, process the sensory data to arrive at an
actionable output, and / or communicate with other devices or the cloud for further
action. This creates an enormous opportunity for semiconductor devices as each of
these ‘sense’, ‘process’, and ‘communicate’ functions require semiconductors.
Examples of sensing systems include 3D cameras, radars, lidars, and other non-
optical sensors (for measuring parameters such as pressure, temperature, etc.).
Semiconductors used for processing can be low-ASP devices such as MCUs to high-
ASP devices such as sensor fusion chips (which will include accelerators for machine
learning inference, in addition to general purpose processing chip). Communication
semiconductors include devices such as Bluetooth / WiFi / RF chips.
We estimate the demand for IoT semiconductors to grow at 20% CAGR during
2017-25E, reaching ~$72bn in 2025E, up from ~$17bn in 2017E.
50
(44-20) 7134-5420 27 November 2017
Figure 34: Semiconductor* market for IoT devices

$ (bn), %
80 27% 26% 30%
24% 24%
70 23%
21% 25%
60 19%
16% 20%
50
13%
40 12% 15%
30
10%
20
5%
10
- 0%
2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
IoT semiconductor revenue ($, bn) YoY growth (%) - RHS
Source: Gartner, J.P. Morgan. *Includes semiconductor revenue from sensing, processing, and communication systems.
As a corollary, the migration of intelligence to IoT end-points will also lead to a

surge in demand for semiconductor memory as the memory content in these
intelligent end-points will go up.
Specialized Infrastructure for AI

Deploying machine learning algorithms for any application requires the initial key
steps of training and testing the algorithm. Training the ML algorithm requires a lot
of processing power and is particularly suited to a class of compute engines that
specialize in highly parallel processing, i.e. GPUs (Graphics Processing Units). A
traditional general-purpose CPU (such as Xeon chips by Intel) consists of a relatively
small number of processing cores that are optimized for serial processing. On the
other hand, a GPU typically consists of thousands of cores (albeit, these cores are
less powerful than the traditional CPU cores) and are much more suited to handle
multiple tasks simultaneously (for example: computing the activation state of
multiple neurons within a neural network layer). Advances in ML have, in part, been
led by the adoption of GPUs for training complex and deep neural networks that
would otherwise consume a lot of time on traditional CPU-only systems. Nvidia has
the leading provider of GPUs for machine learning training in the datacenters and has
witnessed rapid growth in revenues associated with this segment.
Figure 35: CPU vs. GPU - Number of processing cores Figure 36: CPU vs. GPU: Training time for AlexNet (ML algorithm)
Source: Nvidia Source: Nvidia. Note: Titan is the brand name for Nvidia's GPUs.
51
(44-20) 7134-5420 27 November 2017
Figure 37: YoY growth in Nvidia's datacenter revenue

250% 205%
193% 186%
200% 175%
150% 110% 109%

100% 54% 63%
50% 10%
-13% -8%
0%
-50%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17
Nvidia datacenter / HPC Cloud revenue growth YoY
Source: Company data.
While GPUs have been the mainstream industry choice for training ML algorithms,
alternative heterogeneous computing architectures have emerged which use
semiconductors such as FPGAs (Field Programmable Gate Arrays) or customized
chip designs such as Google's Tensor Processing Units (TPUs) to handle the
inference side of the workload. Intel (a traditional CPU vendor) has also accelerated
its investments in heterogeneous computing via acquisitions (Altera in 2015,
Nervana and Movidius in 2016) – The recently announced Intel Nervana Neural
Network Processor is an example of Intel’s AI-focused processor offering. In
addition, there are also new chip architectures that are being trialed for future AI-
focused applications. Some of the prominent names here include: IBM (True North
chip), Qualcomm (Zeroth), BrainChip, etc.
Apart from computing, growing adoption of ML applications is also impacting other

elements of the datacenter infrastructure (namely, storage and networking). On the storage
front, not only are we witnessing rapid adoption of SSDs (Solid State Drives) in the
datacenter, but also emergence of a new class of storage devices, i.e. Storage class memory
(such as 3D Xpoint, ReRAM, etc.). These semiconductor storage devices bring the benefits
of lower latency, which is crucial for data-centric machine learning applications.
Cybersecurity—immediate benefactor to machine learning

The most pervasive use of artificial intelligence, or to be more specific, the use of
machine learning to improve products is found in our cybersecurity universe. Here,
as far back as the early 2000’s the industry was attempting to use computer modeling
labeled heuristics to determine what constituted normal behavior within computer
environments. Things identified outside of determined thresholds were considered
outliers and flagged for further investigation. Now, with the ability to ingest, store,
manage, and analyze massive amounts of data we are seeing true machine learning
being applied to several segments of cybersecurity ranging from endpoint malware
detection/prevention to high level security intelligence and analytics.
Every one of our cyber security companies under coverage has numerous open
positions looking to hire machine learning and AI professionals, showing the level of
interest and investment being targeted to the segment. See profiles of our covered
companies in Appendix 2.
52
(44-20) 7134-5420 27 November 2017
Appendix 1: Artificial Intelligence 101

In simple terms, artificial intelligence is the simulation of human intelligence by
machines. For example, the development of computer systems with the ability to
learn, reason, discover meaning, perceive environment, learn from experience, and
interact.
In practice, AI is a group of technologies that helps facilitate the discovery and

analysis of information for the purpose of making predictions and recommendations,
support decision making, facilitate interactions and automate certain responses. AI
tools will be intimately linked with the overall digital transformation going on now
within businesses, and AI is likely to be embedded in numerous technology
applications within a few years.
AI is different from traditional software programs in that it extracts knowledge from

data and can alter its behavior (or learn) without being specifically programmed.
Traditional software pre-defines the logic, whereas AI discovers the patterns and
logic.
Historical foundations (philosophy and mechanics)

The concept of Artificial Intelligence has been around since … well, ancient Greece,
if you trace the concept of intelligent machines to Hephaestus, the mythical
blacksmith who manufactured mechanical servants, or more legitimately to Aristotle,
who formulated the first deductive reasoning system.
The Antikythera mechanism (dated from around 70 BC) used mechanical gears to
program and predict astronomical positions, and we see such technology used by
clockmakers again in the 16th century. Along the same time period, Leonardo
DaVinci invented numerous mechanical devices – many weapons, but also a famous
walking lion (or robot, so to speak, although the word robot didn’t appear in English
until 1921). In 1642, Blaise Pascal invented the first digital calculator – to help with
tax accounting, of all things. Thirty years later, Gottfried Leibniz improved on
Pascal’s calculator to execute all four arithmetic operations with a device called the
stepped reckoner; and he followed this with a cipher machine and then the Integraph
to solve differential equations. Meanwhile, Samuel Moreland invented a machine
that made trigonometric calculations.
Renaissance philosophers also expanded upon the ideas of machines and intelligence,
with Descartes' "Cogito; ergo sum" (I think, therefore I am), and his idea that the
"bodies of humans and brutes were complex machines made by the hands of God".
Interestingly, Descartes proposed that a perfect machine that resembled the organs
and outward form of any “irrational animal" would be indistinguishable from the real
animal. However, humans could be distinguished by two tests to prove they were
really human: 1) humans could use words/language comprehensibly, and 2) that
humans would act from knowledge and reason and some sense of morality. Descartes
was differentiating humans from animals (obviously our knowledge of animals,
evolution and ourselves is more sophisticated today) but, nonetheless, his
machine/human test remains relevant even today when it comes to identifying a
human vs. a machine.
By the 18th century, mechanical devices were more commonplace, from music boxes
(with the musical code carved on a metal disk) to toys and automata (human-like
53
(44-20) 7134-5420 27 November 2017
machines). There were even AI hoaxes – one of the more infamous being the
Mechanical Turk. This chess-playing machine was exhibited as an intelligent
automaton (beating many chess players in the Austro-Hungarian court and
throughout Europe – including Bonaparte and Benjamin Franklin), but was later
revealed actually to be worked by humans hiding inside. Today Amazon’s
Mechanical Turk is a marketplace for humans to perform tasks that computers can’t
currently perform (but their work is also helping to train the machine).
In 1801, Joseph Jacquard programmed a weaving loom using instructions on punch

cards (the punch card method was used by the first IBM computers as well, right up
through the mid-1970s). Charles Babbage came up with the concept of a digital
programmable computer – although he used a mechanical computer (with levers and
gears, rather than electronic components). George Boole came up with a form of
algebra in which all values are binary: either true of false (0 or 1 for the computer
bit). Today, Boolean search incorporates "and", "not" and "or" to show relationships
between the search words and to drive more relevant results.
Finally turning to the 20th century, Alan Turing was a pioneer of modern computing
and artificial intelligence (he also contributed to the computer that decoded the
Enigma in WWII). The Turing Test (or imitation game) was designed to determine
whether a computer could demonstrate intelligent behavior (via typed words on a
computer screen) that was indistinguishable from that of a human. Fresh medical
research at the time had shown that the human brain was an electrical network of
neurons, and computer scientists were contemplating ways to replicate neural
networks. Meanwhile, in the realm of science fiction, writer Isaac Asimov wrote the
Three Laws of Robotics: 1) a robot may not injure a human, 2) a robot must obey
humans, unless it conflicts with law one, and 3) a robot must protect its own
existence, unless it conflicts with laws 1 or 2.
In 1956 the Dartmouth Conference brought together a dozen leading scientists from
academia and industry over a 6- to 8-week brainstorming period in Hanover, New
Hampshire, to discuss the idea that “every aspect of learning or any other feature of
intelligence can in principle be so precisely described that a machine can be made to
simulate it.” Artificial intelligence was born!
Numerous projects and funding (from MIT, DARPA, US National Research Council,
and others) optimistically flowed into the field of AI for the next decade, only to hit a
wall in the 1970s, largely due to limited computing power and a general lack of
progress.
A rejuvenation of interest occurred in the late 1990s, and many advances were made
in machine learning, multi-agent planning, scheduling, data mining, natural language
understanding and translation, imagery, virtual reality, and games. Famously, the
Deep Blue chess machine from IBM beat the world chess champion, and by the
2000s there was a new proliferation of “smart” machines, games and toys (from
robopets and autonomous vacuums to NASA’s Opportunity Mars Rover and
Google's self-driving car). By the end of the decade, Xbox 360 was using 3D
cameras and infra-red detection to capture human motion to activate game figures on
screen. Nevertheless, HAL9000-type AI autonomy certainly did NOT exist by 2001,
or even today (reference to 2001: A Space Odyssey).
In 2011, IBM’s Watson beat two Jeopardy champions in the complex TV-quiz show,
and that same year Apple's Siri was launched, the first of several intelligent personal
assistants utilizing a natural-language user interface to answer questions, make
54
(44-20) 7134-5420 27 November 2017
recommendations and perform actions. Then, in 2015, Google's DeepMind AlphaGo

beat the European and then world champions at Go (a game with more potential
combinations than there are stars in the sky). This year, the Libratus AI program
designed to play poker beat four top players in Texas hold'em, using not a built-in
strategy but rather an algorithm that computes the strategy.
On the philosophical/political front, in early September, Russian president Vladimir

Putin said "the one who becomes the leader in this sphere [AI] will be the ruler of the
world.” Meanwhile, China has announced its ambition to become the global leader in
AI research.
Untangling the jargon

Despite remarkable advances over the last several decades, computers struggled with
tasks that a six-year-old human could perform with ease (such as identifying images,
understanding context, etc.). Such tasks required a new approach to programming.
Instead of explicitly specifying rules to model the output, programmers fed a few
starting rules combined with a framework that enables the computer to "learn" (much
as a human baby would learn – through training). This approach, called machine
learning, has led to breakthroughs in the fields of image recognition, natural language
processing (the ability to understand language), and predictive analytics, to name just
a few. The idea of enabling machines (or computers) to learn is not new; however,
we have made rapid advances in this field in the current decade.
While the success of such self-learning computers in games like Jeopardy, Go, and
poker captures headlines, we often overlook their presence in our everyday lives:
customized Facebook feed, recommendations on Netflix / Amazon, spam filter in
Gmail, Google search results, and Apple's Siri are all in some way or another driven
by machine learning.
More often than not, terms such as machine learning, deep learning, and artificial
intelligence are used interchangeably to describe the mechanism driving such self-
learning computers. The popularity of these terms has moved in-sync over the past
several years.
Figure 38: Search hits for machine learning, deep learning, and artificial intelligence over the past 5 years
Source: Google Trends. Search hits for machine learning, artificial intelligence, and deep learning indicated by blue, yellow, and red lines respectively. Updated as of 20 Nov 2017.
Although linked to each other in some form, these terms are not equivalent and differ
from one another in several key aspects.
55
(44-20) 7134-5420 27 November 2017
Man vs. machine – the intelligence perspective

The term Artificial Intelligence (AI) often conjures up images of popular fictional
characters such as C-3PO (Star Wars), Rosie (Jetsons), or Terminator – machines
that are capable of human-level reasoning / intelligence. However, in reality, AI is
much broader than the confines of these sentient machines. AI, a term coined in the
Narrow AI vs. General AI 1950s, has evolved in meaning and perspective over the last several decades. A
Narrow AI (ANI), also known as simple pocket calculator or an autopilot controlling a commercial airplane (or a car)
"applied AI" or "weak AI" is can be termed as having AI (essentially, these devices possess capabilities to achieve
purpose-built for a single/narrow certain goals – such as multiplying two numbers or controlling an airplane / car).
task.
General AI (AGI), also known as The common theme underlining the different AI applications that we see around us
“strong AI” is the pursuit (still many (be it a Netflix recommendation engine or a computer playing Go) is that they are
years away) of a machine that can narrow in scope – meaning, these AI-driven systems can perform one (or a few) tasks
emulate human or higher-level very well, but the AI cannot be applied to other tasks in general. A Netflix
general reasoning across nearly recommendation engine, for example, will not be able to drive a car or recommend
unlimited functions.
an investment opportunity. A Netflix recommendation engine will do what it is
designed / trained to do – give movie recommendations.
The AI that we encounter today can be clubbed into a category termed Artificial
Narrow Intelligence (ANI). The AI that can emulate human-level reasoning and
thinking is termed Artificial General Intelligence (AGI). As it stands, we are still a
couple of decades away (most optimistic scenario) from realizing computers capable
of AGI.
AI vs. machine learning vs. deep learning

As NVIDIA views it, the easiest way to visualize the difference between these terms
is to imagine three concentric circles, with AI as the biggest circle, followed by
machine learning and then deep learning. Machine learning is a technique that
enables intelligence in computers (or an AI-enabler) and deep learning (roughly
modeled after the way human brain works) is one of the several machine learning
techniques that is currently gaining momentum. We will explain machine learning
and deep learning in detail in the following sections.
Figure 39: AI vs. machine learning vs. deep learning
Source: Nvidia.
56
(44-20) 7134-5420 27 November 2017
Why do we want machines to learn?

Conventional computer programs are rules-based, meaning that the programs contain
specific instruction sets or rules (such as “if X then Y, else Z”, etc.) which are used to
process input(s). This works well in a deterministic environment, where the model
parameters are known beforehand and can be structured in a logical framework. For
example, instructing a car to travel from point A to point B (assuming no obstacles),
as shown in the figure below, can be easily achieved using a conventional rules-
based program (start at point A, travel 100m straight, turn right, travel 100m, turn
left, travel 100m, arrive at point B). However, to program the same route in the
presence of several obstacles (other vehicles moving in the same / opposite direction,
pedestrians crossing the road, traffic signals at several intervals, etc.) would be
difficult as the variable parameters are not known beforehand. (Using a conventional
rules-based approach to model this environment would entail writing a very lengthy
code taking into account all possible scenarios.)
Figure 40: Sample car-route problem of traversing from point A to point B
Machine learning – An alternative to rules-based programs

An alternative approach to achieve the desired output in the above scenario would be to
"train" the computer to recognize different obstacles and act appropriately rather than
attempting to model the entire route (with all the possible permutations and
combinations). Conventional computer programs face similar roadblocks when dealing
with issues such as fraud detection, pattern recognition (facial, voice, molecular
structure, etc.), language processing, and predictive analytics to name just a few
examples. One common theme underlies all these problems: The variables involved are
fairly indeterministic (as was the case with the car-route problem highlighted above)
and hence difficult to structure using conventional rules-based programs.
‘Hey Siri, what is machine learning?’

Machine learning is the process of Put simply, machine learning (hereafter referred to as ML) refers to a process flow
using algorithms to learn from input that enables systems (computers) to learn from a set of inputs (or known scenarios)
scenarios (data) and make a
without specifically instructing the system what to do (using rules-based software
prediction / determination about an
unseen scenario, based on that
routines). In the example of the car-route problem highlighted above, an ML-driven
learning. This contrasts with the system would be trained on several hours (possibly running into millions) of driving
conventional rules-based approach videos (and even still images for obstacle-identification), enabling the computer to
to programming, wherein specific recognize different obstacles and act in a desired way in a given situation. Contrast
instructions have to be coded to deal this with the herculean task of trying to tell the system how to act for every possible
with unseen scenarios. situation that could arise with a given set of variable parameters.
57
(44-20) 7134-5420 27 November 2017
Figure 41: Machine learning* vs. traditional computing
Source: J.P. Morgan. *Supervised learning
Automating the learning process

The goal of ML algorithms is to enable automated learning without human
intervention (a computing paradigm referred to as programming by example). ML
greatly simplifies modeling complex environments with several, and often
indeterministic, variables. There are three key components in any ML algorithm:
 Model: Helps represent the problem statement (knowledge representation) in a
way that can be understood by computers (examples include graphical models,
decision trees, neural networks, etc.). This is the ‘brain’ of the ML algorithm
where the relationships between different parameters are established to produce
an output (or prediction).
 Parameters: These comprise different factors (or features) that are used by the
model to arrive at an output.
 Learner: This is the central component of any ML algorithm. Its primary
function is to learn from the discrepancy between actual results and model output
and tweak the model parameters (and how different parameters relate to each
other) in order to arrive at the best possible output (the one with the lowest
possible discrepancy).
The process involved in arriving at the best possible model is referred to as training
the ML algorithm. Once trained, the ML algorithm can then be run on a test dataset
to gauge its effectiveness (a process referred to as testing). Post testing, the ML
algorithm is ready for implementation (also referred to as the inference step) to be
applied on “unseen” data.
58
(44-20) 7134-5420 27 November 2017
Figure 42: Basic process flow* involved in training ML algorithms
Source: Figure adapted from Google presentation, J.P. Morgan. *A sample case of supervised learning presented here.
For a more detailed description Types of learning and application areas

of ML models, techniques,
classifications and comparison There are three primary types of learning: Supervised (also known as inductive /
of algorithms, see JPM note: Big classification learning), Unsupervised, and Reinforcement learning.
Data and IT Strategies by Marko
Kolanovic and Rajesh
Krishnamachari. In supervised learning (which is the dominant form of ML in use today), the
training dataset is labeled / tagged with the ‘output’ being modeled. For example:
Training an ML algorithm to identify spam messages using labeled messages
("Spam" or "Not spam") to help the algorithm recognize features that define or
characterize a spam message. Other examples using supervised learning include
evaluating an individual's creditworthiness (based on tagged data for creditworthy
and delinquent customers), facial / voice recognition (based on tagged data of
different faces / voices), etc. Supervised learning is typically employed for problems
wherein the ‘right answer’ or the output is known for a large number of similar
instances.
Another technique, unsupervised learning, involves training the algorithm on a

dataset but without telling it what to look for (contrast this with the supervised
learning approach, where the training dataset is labeled with the output being
modeled). Under this approach, the algorithm learns to recognize different features
from the training dataset provided and groups together examples with similar
characteristics (clustering). This approach is useful for cases wherein the different
categories or classes within the dataset are not known beforehand. As an example of
unsupervised learning, back in 2012, Google’s ML algorithm learned how to detect
cat faces after Google fed 10mn YouTube video stills to the algorithm – Google
programmers did not write the code to detect cat faces nor did they include specific
labels to identify cats (as would be the case in supervised learning) – the algorithm
learned this by itself.
A popular application of unsupervised learning is for making recommendations (be it

Netflix or Amazon). As an example, Amazon can use data on consumer purchases to
train an ML algorithm to recognize hidden patterns or links between different
consumers and relate the different consumer clusters to the items they typically
59
(44-20) 7134-5420 27 November 2017
purchase. This forms the basis of purchase recommendations (the same principle
applies to movie recommendations on Netflix).
Lastly, reinforcement learning is an approach wherein the learning process is

contingent on the reward provided for the model output. As with unsupervised
learning, there are no explicit instructions or labels provided in the training dataset;
however, unlike unsupervised learning, the model output is tweaked based on the
reward provided. Here, the objective of the ‘Learner’ is to maximize the reward by
tweaking the model parameters / structure. AlphaGo, a program by Google's
DeepMind, which beat world Go champion (Lee Sedol), in 2016, is based on this
learning technique.
Neural networks and deep learning

The ImageNet tipping point for deep learning
While there are several classes of ML algorithms in use, one class has been in focus
recently: Deep Learning. The seeds of deep learning algorithms were planted
decades ago; however, this technique came into the limelight in the current decade
after a breakthrough in error rates was achieved in the ImageNet Large Scale Visual
Recognition Challenge (ILSVRC) using a deep learning algorithm in 2012.
ImageNet is an online database containing millions of hand-labeled images. The

annual ImageNet challenge calls upon researchers in the field of computer vision to
compete and measure the progress in detection across a wide variety of objects. The
algorithms are first trained using a set of labeled images and are then asked to
identify labels for unseen images. The winners are ranked based on the error rates in
labeling a new set of previously “unseen” images. In 2010, the error rate of the
winning algorithm was 28% (vs. the human error rate of roughly 5%). In 2012, a
team led by Geoff Hinton (part-time Googler and a professor at the University of
Toronto), achieved a meaningful reduction in error rates (to 16%) using deep
learning. This sparked further interest in this technique, leading to advances in the
field and increased sophistication of deep learning algorithms. The winning
algorithm (based on deep learning) in 2015 achieved an error rate of less than 5%
(beating humans), and in 2017 the error rate of the winner had dropped to 2.3%.
Figure 43: ImageNet Large Scale Visual Recognition Challenge (ILSVRC) error rates
30% 28%
26%
Classification Error Rate
25%
20%
16%
15% 12%
10% 7%
5%
5% 3.6% 3.0% 2.3%
0%
2010 2011 2012 2013 2014 Human 2015 2016 2017
Source: ImageNet. Other factors beyond classification were tested: Localization, Object Detection (still & video).
Deep learning algorithms have enabled rapid progress in the areas of Natural
Language Processing (NLP), Pattern Recognition, Autonomous Driving, Fraud
detection, among other areas. Deep learning employs the use of large (or deep)
60
(44-20) 7134-5420 27 November 2017
Artificial Neural Networks or ANNs (this is the ‘Model’ for Deep learning, as
highlighted in Figure 42).
Artificial Neural Networks – A simplified model of the

human brain
Artificial neural networks (ANNs) are roughly modeled after the human brain – just
as billions of interconnected biological neurons give humans the ability to learn /
recognize patterns / etc., an interconnected network of artificial neurons enables
computers to identify patterns (or learn from input scenarios / data) and store that
learning for application in unseen scenarios.
ANNs are composed of interconnected nodes of artificial neurons (which are

emulated via a software algorithm). Essentially, artificial neurons act as feature
extractors in a deep learning algorithm. Each connection in the neural network is
assigned a weight and each node has its own activation function (which determines
when the neuron will be fired up or activated). The weights between different neural
connections are altered during the training process – this is the step where the
algorithm learns what the defining characteristics of the input scenarios are and the
weights are adjusted in order to minimize the discrepancy between the algorithm
prediction and known outputs for different scenarios.
Input data is fed to the network via the input layer, with the processing (feature
extraction) taking place in the ‘hidden layers’ of the ANN. A Deep Neural Network
(DNN) is simply an ANN with several hidden layers. DNNs can capture several
kinds of complex relationships (on multiple levels of abstraction) and hence it allows
users to model complex phenomenon relatively easily (which otherwise would have
been very difficult to code using conventional rules-based programs).
Figure 44: An artificial neuron (also called perceptron) Figure 45: Basic representation of an artificial neural network
61
(44-20) 7134-5420 27 November 2017
Figure 46: Feature representation in deep learning
Figure 47: Examples of deep learning process flows (highlighting feature representation /
extraction) in object detection, speech recognition, and Natural Language Processing
Source: Adapted from Andrew Ng’s presentation (Link), J.P. Morgan.
Deep learning process flow

The process flow for applying deep learning algorithms (applies to ML algorithms in
general) starts with cleaning the input dataset (to remove errors / outliers and to
ensure continuity). The input dataset is then split into two or three sub-sets (for
training, testing, and / or validation).
Training the deep neural network

Initial reference points for the deep neural network (number of hidden layers, node
count, connection weights and activation functions) are provided by the programmer.
The training process involves feeding a large number of examples (from the training
dataset) to the neural network.
62
(44-20) 7134-5420 27 November 2017
DNNs learn by extracting features from the training dataset (be it patterns in the
image pixels or audio / video content). Consider the sample process involved in
training a DNN for facial recognition presented in the figure below. Essentially, the
DNN breaks down the input images and collects features from the individual pixels.
The relationships between these features (connection weights) are then optimized
during the training process to arrive at the model with the lowest possible
discrepancy with the actual output.
Broadly speaking, a deep neural network is capable of extracting a large number of

features (and thus capable of identifying complex shapes / forms) due to the presence
of multiple numbers of hidden layers. The training process requires huge computing
power and is typically executed with the help of highly-parallel computing chips
such as GPUs (Graphics Processing Units).
Figure 48: Feature extraction / representation in a DNN to be used for facial recognition
Source: Adapted from Nature (Andrew Ng), J.P. Morgan.
DNN testing and implementation

During the testing phase, the optimized deep neural network is fed input samples
from the test dataset and output values are compared against the 'right answers' (may
be intuitive guesses as in the case of unsupervised learning or rewards provided for
the output in the case of reinforcement learning) to gauge the efficacy of the model.
Once the DNN has been trained and tested, the model is now ready for use on
"unseen" data.
Can machines think and reason?

Now that we know a computer can be trained to learn like a human, can it also be
made to "think" and "reason"? The short answer to this question is: Not yet and this
probably will not happen for at least the next several decades.
As explained previously, ML algorithms learn from input examples by identifying

and stitching together different features that are representative of a particular
segment within the input data. These algorithms work well in situations for which
there is a large amount of data (with several features or dimensions) available for
training and the relationships between different features in the data are more or less
steady (or constant). Some of the prominent use-cases for ML algorithms have been
in the areas of computer vision, NLP, speech recognition, pattern recognition, fraud
detection, and predictive analytics.
63
(44-20) 7134-5420 27 November 2017
An important point to note here is that ML algorithms are only as good as the data
that is used for its training. Hence, biases / errors inherent in the datasets will more
often than not lead to broken ML algorithms that yield incorrect (and often
embarrassing) results.
Roadmap to AGI
Artificial General Intelligence (AGI) – the capability to demonstrate human-level
reasoning / thinking / learning to perform any task – is considered the holy grail of
AI research. While there is no agreed upon roadmap to solve the problem of general-
purpose intelligence, there are two key approaches worth mentioning:
1. Players in the revolutionary camp believe that AGI can be realized by using a
radically different approach (rather than using existing ML techniques) – a few
examples here include Sentient, Numenta and Vicarious. Sentient is employing
concepts of evolution (survival of the fittest) to develop algorithms capable of
general-purpose intelligence, while Numenta and Vicarious are reinventing the
way information is processed.
2. Players in the evolutionary camp believe that AGI can be approached by building
on the basic ML blocks (such as NLP / computer vision / speech recognition /
etc.) already in place (stitching these basic blocks together by something known
as transfer learning). There is also heightened interest in applying reinforcement
learning techniques. Google’s DeepMind is one key player that is currently using
reinforcement-learning-based techniques to further the progress toward AGI.
How soon AGI can be achieved is still a widely debated topic; however, most seem
to agree that AGI, or a machine capable of human-level thinking and reasoning, will
be achieved some time over the next couple of decades.
The Singularity
The Singularity is typically defined as the tipping point when artificial intelligence is
exponentially smarter than humans, to the point that it could trigger the end of
humanity. The theory goes that a super-intelligent entity might continue to upgrade
itself at such a great pace that humans would seem utterly insignificant – calling into
question the necessity or continued existence of humanity. Many argue over
if/how/when we get there, and whether humanity can survive or transcend (through
genetic engineering, molecular nanotechnology and mechanical/electronic/neural
enhancements) or be linked to the singularity. Interesting as it may be, this is beyond
the scope of our investment report.
64
(44-20) 7134-5420 27 November 2017
Employment in the face of AI: Disruption or

Evolution?
An important issue stemming from the widespread adoption of self-learning systems
across the consumer and enterprise space is the impact that AI will have on
employment. Today, AI-enabled systems can technically replace not only low-skilled
jobs but also ones that require a high degree of expertise (such as reading CT scans).
Advances in techniques such as Natural Language Generation (NLG) are now
enabling systems to take on tasks in the areas of journalism and investment advisory.
Intelligent chatbots are disrupting the customer service space. Commercial service
robots (capable of operating in unpredictable environments) are automating tasks
from merchandizing to security. There is no denying that these self-learning
machines can perform certain tasks much more efficiently than humans can, resulting
in productivity improvements (As per IDC, AI-applications are expected to yield
productivity improvements in excess of $60bn per year for U.S. enterprises by 2020).
However, its impact on the job market cannot be ignored.
Predictable / Routine tasks most susceptible to automation

As defined by Autor et al in their As it relates to impact of automation on employment, it is important to study the
2003 paper, “The skill content of impact on tasks that comprise a particular job rather than thinking of automation as a
recent technological change”, a replacement for the entire job (which may include several tasks that cannot be
task is a unit of work that
produces output. Further, a skill
automated using current technologies). Against this backdrop, we note that
is a worker's stock of automation (led by AI-enabled systems) will impact almost all jobs (with varied
capabilities for performing levels of intensity depending on the type of tasks involved) over the coming years.
various tasks. Workers apply
their skills to tasks in exchange McKinsey, in a study titled “Where machines could replace humans – and where
for wages. The paper (and its they can’t (yet)”, identified seven top-level task groupings and detailed their
update) can found here (2003)
technical feasibility of automation (or the % of time spent on tasks that can be
and here (2013).
automated using currently available technologies). Predictable physical work (such
as operating a machine or setting up products for display on shelves in a retail store)
and data processing / collection are among the tasks that are most susceptible while
tasks requiring managerial skills and applying expertise to decision making / creative
tasks were ranked as the least susceptible to automation by currently available
technologies.
Figure 49: Technical feasibility* of automation for different tasks
Source: Adapted from McKinsey, J.P. Morgan. *Technical feasibility of automation is defined as the % of time spent on tasks that can
be automated using currently available technologies.
65
(44-20) 7134-5420 27 November 2017
It is worth noting that predictable physical work features prominently in sectors such
as manufacturing, logistics (esp. warehousing), retailing, and food /
accommodation services. Data processing and collection comprises a meaningful
portion of tasks performed by workers in the financial services / insurance /
healthcare sectors. As we highlighted previously, these are the same sectors that are
leading the adoption of AI (in terms of both investments and deployment).
*As highlighted by McKinsey, there are Further, U.S. workers spend more than 50% of time on tasks that are highly
several factors that determine whether susceptible to automation. This signals a massive potential* for AI-led automation in
a particular task will eventually be current jobs (what applies to the U.S. broadly applies to other developed economies).
automated. These factors include: a.)
Technical feasibility, b.) Cost of
developing / deploying both hardware Figure 50: % time spent in all U.S. occupations
and software for automation, c.) Labor Managing others,
costs and relative scarcity of skills, d.) 7%
Predictable
Benefits beyond labor cost savings physical work, 18%
such as better productivity and Applying expertise,
quality, and e.) Regulatory 14%
environment and social-acceptance
issues.
Data processing,
16% Stakeholder
interactions, 16%
Data collection, Unpredictable

17% physical work, 12%
Source: Adapted from McKinsey, J.P. Morgan.
A ‘routine’ task is one that can be The findings from McKinsey are in-sync with the work done by Osborne and Frey
coded into algorithms that can be (who estimate that ~47% of U.S. employment is at risk from computerization). To be
executed by machines. On the other clear, the impact of automation on employment is not a new phenomenon (and
hand, a cognitive task is one that
requires mental skills and adaptability
discussions on this topic date back to the Industrial Revolution). In fact, a closer look
to the task at hand. at the mix of U.S. employment over the last couple of decades demonstrates how
employment in non-routine jobs (cognitive and manual) has grown, while
employment in routine jobs has stagnated / declined (of note, Figure 51 also includes
Examples: the impact from offshoring). With the proliferation of AI across several industries,
we expect this trend to continue.
Non-routine cognitive: Managing
people, education/tutoring, writing
algos for autonomous driving, etc. Figure 51: The changing composition of U.S. employment
Thousands of persons, not seasonally adjusted
Routine cognitive: bookkeeping, 60000
clerical work, interpreting x-rays,
aspects of nursing, repetitive 50000
customer service, etc.
Routine manual: Manufacturing 40000

(predictable environment), food prep,
packaging, transportation services, 30000
etc.
20000
Non-routine manual: Hotel
housekeeping, construction, raising
10000
outdoor animals, preparing a meal.
Jan-83 Jan-88 Jan-93 Jan-98 Jan-03 Jan-08 Jan-13
Non-routine cognitive Routine cognitive Routine manual Non-routine manual
Source: Federal Reserve Bank of St. Louis, J.P. Morgan.
66
(44-20) 7134-5420 27 November 2017
Will AI be a net creator or destroyer of jobs?

In a 1930 essay titled, Economic possibilities for our grandchildren, Keynes
described ‘technological unemployment’ as something arising from "our discovery of
means of economizing the use of labor outrunning the pace at which we can find new
uses for labor”. Increasing sophistication of AI-enabled systems is likely to make
more tasks amenable to automation going forward. This may potentially lead to job-
polarization (concentration of jobs either in the high-paying, non-routine cognitive
or in the low-paying, non-routine manual buckets) and displacement (esp. in certain
verticals such as manufacturing, customer service, financial services, etc. that have a
higher proportion of automatable jobs).
Net creator or destroyer? The ‘Lump of labor' fallacy

The impact of technological progress on employment is characterized by two key
stages: 1) Destruction of jobs – as technology substitutes for labor (wherever
economically viable) and 2) Creation of new jobs – as technology improves
productivity, industries expand and grow creating new job opportunities. The
previous waves of technological disruption have almost always led to net creation of
jobs (example: the roll-out of ATMs reduced the operational cost of a bank branch,
which in turn led to opening of more bank branches, creating more jobs).
We expect the impact of adoption of AI to follow a similar trend. While it is often

easy to identify areas where jobs can be substituted by technology, it may not always
be apparent to predict the new job opportunities (albeit, ones that will require new
skills) that are created as a result of technological advancement (as an example: no
one would have imagined working as a video-game designer back in the 50s). The
notion that there are a finite number of jobs, which if replaced will lead to
unemployment, is termed by economists as the 'Lump of Labor' fallacy.
While the current wave of AI adoption may lead to new job opportunities in the
future, a short-term disruption in the labor markets seems inevitable (especially in
DMs, where the adoption of AI will be more prominent. EMs may continue to chug
along with traditional jobs as low labor costs may not justify deploying AI). This is
where governments and regulatory agencies are likely to step in – to smooth the
transition to a new information age. Acquisition of new skills via continued
education and overhauling the existing educational system to ensure a robust pipeline
of workers ready for the jobs-of-the-future are likely to garner increased focus from
the concerned authorities, in our view.
67
(44-20) 7134-5420 27 November 2017
Appendix 2: What companies are doing in AI

Given our global stock coverage, one of our main goals is to educate investors on
what these companies are doing within the realm of AI.
Tien-tsin Huang, CFAAC Accenture (ACN US, OW)

(1-212) 622-6632
tien-tsin.huang@jpmorgan.com Accenture’s AI practice is embedded across its ACN Consulting, ACN Technology,
J.P. Morgan Securities LLC and ACN Digital and ACN Operations segments. The company has opened an AI
R&D lab and incubation hub in Dublin called The Dock, employing ~200 researchers
to innovate with clients and ecosystem partners. The company helps its clients
build/deploy AI solutions, providing advisory and implementation services.
Implementation services typically include offering AI based solutions (custom or
standard), training AI robots, data modeling, and SI.
Accenture Artificial Intelligence Engine (AAIE) is a framework that is deployed as a

service, for on-demand flexibility, open-source software to deliver modular, reusable,
scalable and cost-effective AI automation and augmentation services. ACN
implements AI as a part of its platforms (IP) as well as through industry
collaborations.
The AI framework consists of:
1. Intelligent Automation. Eliminates repetitive tasks through automation while

improving complex problem solving, risk analysis and business decision-making
capabilities.
2. Cognitive Robotics. Create bots with perception, planning, memory and
reasoning leveraging AI across B2C industries like customer service, retail and
hospitality.
3. Machine Learning. Provides systems with the ability to learn without being
explicitly programmed leveraging combination of integrated analytics and AI
algorithms.
4. Robotic Process Automation. Allows organizations to deploy intelligent
software systems replace the actions of human users.
5. Biometric Face Testing. An AI application that gives intelligent systems the
ability to gather data on facial features and demographics.
68
(44-20) 7134-5420 27 November 2017
Figure 52: Application Benefits of Accenture AI
Source: Company website
ACN applies AI technologies across applications like claims processing, fraud

detection, drug testing, dynamic process compliance, pharmacovigilance etc.
 ACN's Intelligent Automation Platform myWizard augments human workers

with virtual agents to improve data analysis and pattern identification and drive
better business outcomes. ACN claims that platform generates upto~60%
productivity improvements for its clients.
 ACN launched Drishti, which provides smart phone-based assistance using AI
technologies such as image recognition, Natural Language Processing and
Natural Language Generation capabilities to describe the environment for a
visually impaired person.
 Intelligent Robot called Pepper at Softbank, embedded with AI technologies to
drive customer engagement and experiences.
 In 2016, ACN and RoboValley, an innovation hub for robotics located at Delft
University of Technology in the Netherlands, announced a 5-year collaboration
designed to advance the development of the next generation of robotics
technology.
 Accenture Robotics Solution is ACN's five-part solution that combines RPA
with more advanced AI capabilities.
69
(44-20) 7134-5420 27 November 2017
Figure 53: ACN’s RPA spectrum of services
Source: Company website, J.P. Morgan.
 Unique Identity Service Platform. ACN developed Unique Identity technologies

ranging from biometric R&D to delivery-at-scale, via algorithm benchmarking,
device evaluation, prototyping, development of proofs of concept, live piloting,
biometric governance & quality assurance, diagnostics & capability assessments
and biometric strategy definitions.
 Accenture Cyber Intelligence Platform (ACIP). Applies proprietary AI
techniques to data in real-time, identifying internal and external threats.
 Accenture Intelligent Email Advisor, analyzes emails using natural language
processing, understands the requestor’s intent and retrieves relevant data from
systems to help the team resolve issues; Accenture Procurement Advisor -
prepares reports by combining data mining, text and data-analysis skills to
analyze publicly available digital information including financial publications and
business news.
 Notable Industry Collaborations. 1) With IPsoft, an AI provider, to launch a
new practice focused on its virtual agent platform, Amelia. ACN will utilize
IPsoft’s Amelia platform to develop go-to-market strategies, solutions and
consulting service offerings around deployments of virtual agent technology. 2)
With Pega, to leverage Pega’s platforms (including its AI solution, Pega
Customer Decision Hub) to provide applications at scale. As such, ACN
deployed the scaled solution, Accenture Aviation Experience Accelerator to
Transavia, a low-cost, European airline. 3) With Pivotal to form The Accenture
Pivotal Business Group (APBG) to leverage and deploy next-gen technologies
including artificial intelligence, connected cars and home, and internet of things
(IoT), 4) With German Research Center for Artificial Intelligence (DFKI) to
embed DFKI’s specialized AI research capabilities with ACN's analytics
expertise to further the adoption of new technologies in Germany.
70
(44-20) 7134-5420 27 November 2017
Sterling Auty, CFAAC Adobe (ADBE US, OW)

(1-212) 622-6389
sterling.auty@jpmorgan.com The most visible use of AI within our Software Technology universe here in the US
J.P. Morgan Securities LLC comes from Adobe with its Sensei platform. The inputs coming from millions of
users—from the enterprise level all the way through to consumers—are a powerful
platform for data aggregation to utilize within the growing set of algorithms in the
Sensei solution set.
Making product better rather than a specific AI product

Sensei is the technology codename that Adobe uses to describe the artificial
intelligence technology that it is baking into the creative cloud suite of products that
range from Photoshop to Lightroom. The solution is able to do a lot of advanced
editing capabilities that began with content aware editing. This gives Photoshop the
ability to eliminate an object from an image, filling in with what the program is able
to understand should be the background to that object. In fact, the company is taking
it a step further with an automated deletion capability for video.
Alibaba
Secret recipe to success in AI: CUBA. Alibaba identifies four key elements of
Alex YaoAC
AI(the concept of “CUBA”) which includes cloud computing, use case, big data and
(852) 2800-8535
alex.yao@jpmorgan.com
algorithm. We think the company has competitive edges in all these areas by
J.P. Morgan Securities (Asia Pacific)
leveraging its strong cloud infrastructure (No.1 cloud service provider in China),
Limited extensive use case (from ecommerce, local service to digital content), rich data
resource generated from various use cases and seasoned technology team.
Areas of AI application
Ecommerce
 Personalized recommendation. By leveraging its rich data resources and
enhanced data analytic capability, Alibaba made a major algorithm upgrade in Sep
2016 and is able to push more relevant personalized recommendations to
customers. It essentially expands the presenting inventories, which generates more
product exposure and improves traffic distribution efficiency. Meanwhile, the
enhanced matching accuracy of recommended products with customer
demographics translates to increased click-through and conversion rates, which
drives both monetization improvement and GMV growth. Since the algorithm
upgrade, the revenue growth rate of China retail business has accelerated from
40% in Sep Q 2016 to 64% in Sep Q 2017. In 2017 Single Day event, Alibaba
achieved 100% personalization for content feeds and search result page
Figure 54: Personalized recommendation drivers revenue acceleration
70% 64%
57%
60% 49%
50% 39% 41% 40% 42% 41%
35% 35%
40%
30% 24%
20% Growth accelerated after algorithm

10% upgrade in Sep 2016
0%
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
YoY growth of China retail business

Source: Company reports and J.P. Morgan
71
(44-20) 7134-5420 27 November 2017
 AI powered customer service. The company has applied AI technologies such as

machine learning and natural language processing in customer service area and
developed AI robot to address customer queries. During Double 11 event in 2017,
some 95% of customer service queries were answered by AI robot. Thanks to this
application, customer service headcount went down in the past few years despite
growing business scale.
 New Retail. Hema is able to fulfill online orders within 30 minutes (during non-
rush hour) in a 3km radius range. This strong fulfillment capability is powered by
AI algorithm that enables quick in-store preparation (product sorting and
packaging are generally done within 10 mins with the help of automated
equipment) and fast delivery (the system provides optimized route). On the B2B
side, Alibaba’s merchandise sourcing initiative Lingshoutong (零售通) leverages
its data analytics capability to help mon-and-pop stores analyze nearby residents’
attributes and therefore source potentially fast-selling products.
Financial services
 “Pay with Face”. Leveraging its facial recognition technology, Ant Financial
launched "Pay with Face" service at one KFC restaurant in Hangzhou this
September. Alipay users can make the payment through facial recognition, which
uses a 3D camera and live detection algorithm to verify users’ identity. The
company offers compensation in the event of account stolen. It plans to expand
this service to more use cases when the technology becomes more mature.
 Risk management. AntBuckler is a big data and AI based risk management

system developed by Ant Financial, which helps enterprises identify potential
fraudulent activities. For instance, coupon and cash rebate is a popular promotional
strategy for user acquisition. Fraudsters generally will register hundreds of
different accounts to falsely claim this incentive, causing significant loss to these
merchants. Leveraging its big data analytics and machine learning capability,
AntBuckler is able to identify risky user and device ID, prevent and stop any
potential fraud activities.
Logistic services
 Route optimization. Cainiao leverages its data analytic capability to help delivery
partners to optimize routes therefore increasing deliver speed and lowering cost.
As of Sep 2016, Cainiao’s fulfillment network provides same-day delivery in 37
cities/128 districts and counties and next-day delivery in 162 cities/959districts and
counties.
Others
 Voice assistant. Alibaba launched its first AI powered voice assistant “Tmall
Genie” (similar to Amazon Echo) in July 2017. It's able to identify users’ voice
and assist them in a number of areas such as controlling smart appliance, shopping,
ordering local services and searching for information.
Doug AnmuthAC Alphabet (GOOGL US, OW)

(1-212) 622-6571
douglas.anmuth@jpmorgan.com Google has rebranded itself from being a “mobile-first” company to an “AI-first”
J.P. Morgan Securities LLC company with AI/ML deployed throughout the organization. While Google has two
teams primarily focused on AI—Google Brain, which it started in 2011, and
DeepMind, which it acquired in 2014—there are 1,000+ deep-learning projects
underway w/applications across Search, YouTube, Android, Gmail, Photos, Maps,
72
(44-20) 7134-5420 27 November 2017
Translate, Waymo, and more. We believe Google will continue to attract and
retain talent in the field of AI/ML—which is increasingly challenging—driven
by Google’s broader scope and scale.
 Search. Since early 2015, Google has incorporated RankBrain, a deep learning
technology that helps refine queries & rank web pages, into its Search engine.
Since then, RankBrain has become one of the most important ranking factors for
Google Search. Separately, Google Brain improved video recommendations for
YouTube users, leading to increases in watch time.
 Google Hardware. Google is using AI/ML based enhancements incl. Google
Assistant in Google Home, Google Lens in Pixel Phones, and translate in Pixel
Buds to differentiate its hardware products. We believe voice and image search,
with real world application in Google Assistant & Google Lens, will be
incremental to the search experience over time, and while we believe these
technologies are still early in adoption, Google’s hardware puts them in
consumers' hand.
 Google Cloud. Some of the AI/ML technology available in Google Cloud
include:
 TensorFlow. Google’s open-source ML framework originally developed by
Google Brain team for conducting ML and deep neural networks research. It is
widely used companies like Airbnb, Uber, Sap, eBay, Intel and more.
 Conversational API uses ML to recognize intent & context, and helps in
building conversational interfaces like messaging platforms, chatbots, etc.
 Google Cloud Video API makes videos searchable and discoverable by
extracting metadata.
 Google Cloud Vision API uses machine learning models to understand the
content of an image, detects individual objects incl. printed words and faces
within the image, and classifies image into categories.
 Google Cloud Speech API uses neural network models to convert audio to text
and recognize 80+ languages and variants.
 Any Many Others including Natural Language API, Translation API.
 Waymo. This autonomous vehicle division within Alphabet has been testing its
vehicles on the road since 2009. While the details around commercialization of
this division is still unclear and far off, we believe it has the potential to become
one of Alphabet's next big driver of growth, and its recent spin within Alphabet
and rebranding to Waymo is a clear indication of progress.
 AlphaGo. DeepMind’s Go-playing general-purpose AI program AlphaGo’s
accomplishment includes its victory over the world champion Lee Sedol.
AlphaGo utilizes technology like advance tree search, deep neural networks, and
reinforcement learning, and the DeepMind team believes their approach behind
AlphaGo can be commercialized and applied broadly to solve general problems
in the world.
Mark MurphyAC Alteryx (AYX US, N)

(1-415) 315-6736
In June 2017, Alteryx acquired Yhat, which offers self-service data science tools for
mark.r.murphy@jpmorgan.com
developing, managing, and deploying machine learning models to web and mobile
apps. The acquisition will enhance Alteryx’s platform and build on its strategy to
help organizations empower data scientists to rapidly deploy and manage advanced
analytic models.
73
(44-20) 7134-5420 27 November 2017
Stacy PollardAC Amadeus (AMS SM, N)

(44-20) 7134-5420
Amadeus is looking at applying AI to the travel industry in several ways, via
predictive analytics and ML, as well as using chatbots and virtual assistants.
However, these are more plans than actual products on offer today. Though, within
its Travel Intelligence division, Amadeus offers a range of BI tools to support airline
decision-making. The company uses big data tech with rich data sources and a
dedicated team of talented data scientists. Data is extracted from multiple sources:
industry, customer and Amadeus systems, providing in-depth information for airlines
to gain real insights into overall market dynamics, their own performance and growth
opportunities.
The Travel Intelligence division has a TAM of around €1.3bn pa, but with the
expanding capabilities of AI, the TAM could also be increasing. Current products
and solutions from Amadeus include:
 Amadeus Booking Analytics

 Amadeus Performance Insight
 Amadeus Schedule Recovery
 Amadeus Search Analytics
Future opportunities, with more AI and ML embedded:

 According to Christophe Ancolio, Innovation Manager at Amadeus, inspiring
people to travel is about showing them relevant content and offers, and AI and
ML is helping travel providers target online travelers more effectively (via smart
advertising, for example).
 AI can also help travel companies create highly-tailored offers based on
customers’ needs and preferences, utilizing deep learning algorithms which
analyze customers’ online activities (what photographs they’re looking at, or
what articles, news and ads they are reading, as well as other shopping
preferences, location, time and other parameters).
Figure 55: Creating tailored offers with artificial intelligence
Source: Amadeus materials
 Chatbots can be useful in helping travel agencies deal with travelers disrupted by
weather or other travel delays - when things need to be rescheduled or rebooked.
Finally, virtual assistants could scan its user’s calendar to identify events which
74
(44-20) 7134-5420 27 November 2017
require travel and offer to book flights/hotels proactively, while taking into
account the traveler’s preferences and past booking behavior.
We expect to hear more at Amadeus’ CMD scheduled for 13th December.
Doug AnmuthAC Amazon (AMZN US, OW)

(1-212) 622-6571
Amazon was an early adopter of AI, which is prevalent throughout the company’s
retail & cloud business segments. Below we highlight 4 key areas where AI is core to
Amazon’s offering: 1) Amazon’s product recommendation engine, 2) Amazon
Alexa, 3) Amazon Web Services (AWS), & 4) Amazon Go. We note there are many
other areas where Amazon utilizes AI, including its supply chain, demand
forecasting, capacity planning, fraud detection, translations, & more.
 Product recommendation engine. Amazon’s AI framework DSSTNE powers

the platform’s product recommendation system, which is an AI-driven
information filtering system that can automatically predict user preferences and
responses to queries based on past behavior, one user’s relationship to other
users, similarity among items being compared, and context. Amazon’s
recommendation engine plays an important role in its retail business, with an
estimated ~35% (per Techadvisor) of AMZN sales generated through the
recommendation engine.
 Amazon Alexa. Alexa is the voice assistant, or brains behind Amazon’s Echo
devices. Alexa is an intelligent AI system fueled by Natural Language
Understanding and Automated Speech Recognition. Since the market debut of
Amazon Echo devices in 2014, Amazon has shipped tens of millions of these
smart-speakers, which creates an important feedback loop as Alexa constantly
learns & improves from human data & interaction. Amazon has made it easy for
developers to build Alexa voice applications and has heavily invested in tools for
application creation. According to Voice Labs, there are more than 10k+ Skills
on the Alexa platform.
 Amazon Web Services. Amazon utilizes AI to both increase the efficiency of its
cloud operations & also offer products that allow other companies to leverage its
capabilities. AWS rolled out its Amazon Machine Learning Service as a
competitor to similar products from Microsoft and Google, and made its deep
learning software (DSSTNE) available to developers in 2016. AI driven services
offered include Amazon Lex, Amazon Polly, & Amazon Reckognition.
 Amazon Lex—the technology behind Alexa—provides advanced deep learning
functionalities of automatic speech recognition (ASR) for converting speech to
text, natural language understanding (NLU) to recognize the intent of the text,
and helps developers build natural language into services such as Chatbots.
 Amazon Polly is Amazon’s text-to-speech service that uses deep learning
technologies to synthesize speech that sounds like human voice.
 Amazon Reckognition, the service based on the same deep learning technology
used to analyze billions of images daily for Prime Photos, can help detect objects,
scenes, text, faces, etc.
 Amazon Go. Amazon Go is a new store format Amazon is testing, which relies
on computer vision and machine learning to allow customers to walk in, select
items, walk out, and have their account automatically charged. Amazon Go
represents the potential for a new retail format where there is no checkout process
and no cashiers. Amazon Go currently has one Seattle location open in Beta,
75
(44-20) 7134-5420 27 November 2017
though there is potential the technology could roll-out across Amazon’s other
physical locations (such as Whole Foods Market) over time.
Stacy PollardAC Atos (ATO FP, OW)

(44-20) 7134-5420
Atos is looking to apply its expertise and technology in supercomputing (through the
Bull brand) to the training of algorithms. They are involved with the software
required to do the training (image processing, speech recognition), but are not
currently developing all the blocks required – rather, they are adding in 3rd party
software onto their own where necessary. Atos is also using applications designed to
improve the efficiency of IT service responsiveness.
Atos Security Operations Center (SOC), for example, based on Big Data analytics
and Machine Learning technology and powered by Bullion servers, continuously
learns from previous threats and orchestrates responses in real-time. Detection
and total response/recovery time can be significantly reduced. By analysing and
correlating high volumes of structured and unstructured data, the SOC monitors the
internal customer network, social networks, deep web and the dark web for full scale
screening. Through deep packet analysis, pattern recognition and weak signal
detection Atos’ SOC transforms the data into intelligence.
Atos Virtual Assistant (AVA), newly launched through a strategic partnership with
CogniCor (Barcelona based AI company with Machine Learning, Cognitive Methods
& Natural Language Processing capability), is able to provide support to and expand
Atos’ IT Service Desk offerings. AVA delivers machine learning capabilities in
the cloud and is able to automatically answer IT service desk and data center
requests through a virtual agent. As well as answering and responding to
problems, AVA is able to anticipate future issues based on collected trend data such
as IT tickets, FAQs and user-generated content. AVA is integrated within Atos
Digital Transformation Factory, and also a key part of Atos’ help and interaction
Source: Atos. center.
Atos’ Quantum Learning Machine (QLM) can simulate up to 40 quantum bits,

and can be used to develop, simulate and test quantum applications. The QLM is
based on a universal programming language driven by a new ultra-compact
supercomputer (about the size of an enterprise server). The universal programming
language, aQasm, enables connectors, which carry programs from other quantum
simulators to be developed. The fact that the machine is the same size as a standard
enterprise server means it can easily be installed on-site at all types of clients
(industry, government, and research/academic institutions).
Atos Codex, Atos’ analytics platform, is an integrated end-to-end analytics solution

which incorporates predictive computing and cognitive analysis, enabling customers
to collect, analyze and share data. Atos Codex incorporates high performance
analytics, and has pre-loaded business use cases ready to implement. As an
example, Atos Codex has helped T-Mobile Australia identify (through demographic,
geographic and financial attributes) fraudulent customers in their infancy, resulting in
lower potential revenue losses for T-Mobile Australia. Figure 56 below reflects how
Atos Codex operates within a utility company’s data framework.
76
(44-20) 7134-5420 27 November 2017
Figure 56: Atos Codex
Source: Company reports.
Stacy PollardAC Aveva (AVV LN, OW)

(44-20) 7134-5420 Aveva sees opportunities to utilize Artificial Intelligence to analyse real-time big
stacy.pollard@jpmorgan.com data sets, especially in the area of predictive maintenance. For example, in a plant
J.P. Morgan Securities plc environment, sensors (such as vibration or temperature sensors) collecting real-time
data can use pattern recognition to determine maintenance needs of various
equipment. Matching real-time data to the equipment’s digital twin could also allow
for automated replacement parts to be ordered and repairs to be scheduled for
mechanics or robots. Furthermore, the feedback loop could be implemented into
future design iterations.
We spoke to Aveva’s CTO Dave Wheeldon, and he thinks about implementing AI

within the framework of the scientific model to develop theories about the world:
designing experiments, running simulations, analysing outcomes and designing
models to predict empirical evidence (then continually test and refine based on real-
world sensory data).
Overall, our view is that full AI is still in the development phase at Aveva, and not
yet a routine advanced feature of its CAD or products. However, we hope/expect to
see much more with the integration of Schneider Software.
Alex YaoAC Baidu (BIDU US, N)

(852) 2800-8535
Baidu’s AI strategy comprise of 4 major projects:
Limited  Autonomous driving platform ‘Project Apollo’,
 Baidu cloud,
 Conversational-based AI smart device platform ‘DuerOS’.
 Internet finance
After attending Baidu’s two AI events in July/Nov, we are incrementally more
positive on Baidu's AI strategy as the development of AI has moved from lab
research stage to product commercialization stage. Nonetheless, we believe large
scale commercialization and product adoption of Baidu's AI strategy seems still a
77
(44-20) 7134-5420 27 November 2017
couple of years ahead of us at least, let alone monetization. We believe market

sentiment on Baidu will improve post the event, however, the stock might continue
to trade as a search engine until it gains traction in AI adoption volume
 Exporting autonomous driving solutions through ‘Project Apollo’. In April

2017, Baidu announced Project Apollo, which opens complete autonomous
driving solution to outside partners. Key technologies opened so far include
environment awareness, route planning, automobile control and in-car operating
system, which cover four major components of autonomous driving: auto,
hardware, software and cloud based data service. Baidu now has 1.7k+ eco-
system partners for ‘Project Apollo’, which includes OEM, map technology
companies, chipset developers, private equity fund, government agencies and
research institutes, with large auto companies such as overseas car brands
Ford/Daimler AG, Chinese car brands Chery/Greatwall/Changan and car
equipment developer Bosch/Continental. In addition, Baidu cooperates with King
Long Motor Group, a leading bus manufacturer in China to achieve mass
production of the first autonomous driving bus in July 2018 (There will be no
wheel/driving seat on the bus).
 Baidu Cloud: AI based cloud supported by ‘Baidu Brain’: Baidu announced
its cloud strategy, which comprise of ‘ABC’: AI, Big data and Cloud Computing.
Compared to Alibaba/Tencent, Baidu Cloud mainly focus on AI based SaaS
service (voice recognition, natural language processing (NLP), user portrait and
visual recognition), supported by Baidu’s core AI engine ‘Baidu Brain’ (similar
to Google Brain). Since 2016, Baidu has provided over 80 core AI capabilities of
Baidu Brain to its partners in the form of API. Over 370k partners have joined
open platform of Baidu Brain and use various capabilities of Baidu Brain every
day. According to Baidu management, daily request for Baidu Brain API
exceeded 219b recently.
 Conversational-based AI smart device platform ‘DuerOS’: DuerOS is an
interaction system that enables devices to communicate with users in voices. The
system is an integrated solution of software and hardware that is developed by
Baidu and partners. Baidu believes that high quality voice recognition, semantic
recognition (understand what user want) and service breadth (satisfy user
demand) are the key elements for a good AI system. DuerOS has a wide range of
partners, including hardware manufacturers such as Sharp/Sony/Meizu; smart
device sales channel such as JD/Gome; component developers such as
Qualcomm/Inspur and content provider such as iQiyi. Baidu also launched 3 new
smart hardware devices as reference designs in the recent Baidu World in Nov
2017:
 Raven H, which is an intelligent speaker (similar to Amazon Echo) based on
Baidu’s mobile operating system DuerOS 2.0 with a detachable voice input
remote control (Price at Rmb1,699). Raven H enables users to search for
sports/music/lifestyle related content via voice input.
 Raven R, which is a robot-like intelligent speaker with all function of Raven H,
and able to stimulate human gesture via voice input.
 Raven Q, which is a robot with a series of Baidu core AI technologies, such as
facial recognition, visual recognition and autonomous driving.
Internet finance
Baidu’s core AI application in internet finance includes: 1) smart investment advisor,
supported by its rich user data and algorithm, Baidu is able to provide tailor-made
78
(44-20) 7134-5420 27 November 2017
financial service to each user. 2) identity recognition, supported by Baidu’s

capability in visual/voice recognition and OCR (Optical Character Recognition). 3)
big data risk management, supported by Baidu’s rich user behavior data and machine
learning capability. 4) smart customer service provided by AI based chat-bot.
Baidu’s products of AI-based Internet finance include:
 Baidu Wealth Management. Baidu aims to provide fairer, more creditworthy

and more transparent wealth management service to investors by leveraging
strengths in big data and technology. For its customers, Baidu analyzes their risk
profiles using its own artificial intelligence technology. For investment products,
Baidu uses Baidu data analytical capabilities to more holistically analyze their
potential risks and returns. Furthermore, Baidu has established a team of
experienced wealth management professionals to serve its customers.
 Baidu Consumer Credit. Baidu Consumer Credit offers education loans and
consumer financing in industry sectors such as travel, beauty, home decoration
and home rentals, through partnership with a large number of educational
institutions and other companies and merchants. Baidu is creating an innovative
platform to provide internet financial services, which give its users more
convenience and faster approval, with the help of its AI-based risk control
technologies including facial and fingerprint recognition, optical character
recognition (OCR) of identification documents, and live detection.
Sterling Auty, CFAAC Barracuda Networks (CUDA US, OW)

(1-212) 622-6389
The messaging security that the company provides through both on premise
sterling.auty@jpmorgan.com
appliances and in the cloud utilizes what the company labels deep machine learning
to identify and protect against malware. Especially against modern polymorphic
malware that has been tougher to detect over the last couple of years.
Mark MurphyAC Box (BOX US, N)

(1-415) 315-6736
Box is using AI to automate the process of tagging and categorizing content within
photos, audio or video files. In October 2017, Box announced Box Skills, which
comes with three out of the box skills: 1) Image intelligence (powered by Google), 2)
Audio Intelligence (powered by IBM Watson) and 3) Video Intelligence (powered by
Microsoft Cognitive Services). It also announced Box Skills Kit which is an SDK for
customers to build their own skills and supports cognitive services APIs from IBM
Watson, Azure and Google to power these skills. Box also announced Box Graph
recently, which is an intelligent network of content, relationship and activity enriched
by Machine Learning techniques and governed by Box’s built in security and
permissions. The first experience powered by Box Graph is called Feed, whereby
every user can see content recommended to them based on their activity along with
trending content popular within their company.
Stacy PollardAC Capgemini (CAP FP, OW)

(44-20) 7134-5420 Capgemini aims to introduce and implement AI-based innovation to its clients where
it serves a specific business purpose. Capgemini sees the process of learning,
developing and preparing in this area as key to developing an internal ecosystem of
knowledge around Artificial Intelligence, Machine Learning, IoT and Smart
Services. The know-how will support go-to-market strategies and enable CAP to
further engage with both existing and new clients in these areas.
79
(44-20) 7134-5420 27 November 2017
Capgemini’s Insights and Data team (I&D), with know-how in AI, ML and
predictive analytics, are working with vendors and customers looking to implement
these technologies. Recent projects include using cognitive technologies (IBM
Watson Explorer) at Akershus Hospital, University of Oslo, to understand the
cumulative impact of radiation on cancer in children as well as leveraging Big Data
and predictive analytics to produce a 360 view of customer profiles for French
retailer Kiabi.
The Applied Innovation Exchange, Capgemini’s network of innovation hubs (ten

centres worldwide) connects startups, partners and universities, to provide an
environment for customers to test technologies and develop pilot projects. The
network of centres aims to adapt innovation to the specific sectoral needs of each
client. As an example, a virtual fashion assistant for a European retailer was created,
as well as shelf analytics, visitor management and virtual store solutions for separate
retailer.
Capgemini announced (in February last year) it will be partnering with Celaton,
and using its inSTREAM software, a cognitive learning platform. Celaton’s
technology is able to process structured, semi-structured and unstructured
information, and learn from the data. The platform can minimise the need for manual
processing and aims to ensure that only accurate, relevant and structured data enters
line of business systems. Through processing and monitoring the actions and
decisions of human operators and referring ‘exceptions’ to them, inSTREAM is able
to continually improve. The solution is able to capture, extract and verify data, as
well as determine outcomes (using previous experience, knowledge and business
rules), archive and monitor.
Mark MurphyAC Cloudera (CLDR US, OW)

(1-415) 315-6736
Cloudera is positioning its Spark platform for Machine Learning workloads. Spark is
J.P. Morgan Securities LLC an in-memory based massively parallel processing engine, making it suitable to run
the iterative, compute heavy machine learning algorithms. We estimate that about
700 Cloudera customers are today using Spark with 30-50% of them using Spark for
Machine Learning use cases. Additionally, Cloudera recently launched the Data
Science Workbench, which is a web application that allows data scientist to
collaborate and build Machine Learning models. In September 2017, Cloudera also
announced its acquisition of Fast Forward Labs, a startup that is an expert in
Machine Learning and helps customers to choose the right Machine Learning
algorithm or framework based on the use case.
Paul Coster, CFAAC Cognex (CGNX US, UW)

(1-212) 622-6425
paul.coster@jpmorgan.com
Cognex is a leading supplier of machine vision products, including barcode readers,
machine vision 2D and 3D sensors used in factory automation, logistics, life sciences
and other applications. The company acquired ViDi Systems in April 2017, a maker
of deep learning software for industrial machine vision. The software uses AT to
improve image analysis and trains the systems to distinguish between acceptable and
unacceptable variations and defects in high-scale manufacturing. Cognex offers three
ViDi tools for use with machine vision solutions: Fixturing (find and localize
features in an image), segmentation and defect detection (e.g., scratches on a finished
surface), and object and scene classification. CGNX has been growing rapidly, its
machine vision technology now features prominently in CE manufacturing, including
production of Apple’s iPhone X OLED screens.
80
(44-20) 7134-5420 27 November 2017
Tien-tsin Huang, CFAAC Cognizant (CTSH US, OW)

(1-212) 622-6632
CTSH’s AI solutions are largely a part of its analytics practice, and are applied
across its Digital Business, Digital Operations and Digital Technology. CTSH
primarily focuses on deploying AI technologies in B2C applications like trade
processing, pharmacovigilance, consumer interface etc. across banking, insurance,
retail and healthcare verticals.
CTSH primarily deploys AI through its Intelligent Process Automation practice:
 Intelligent Product Practice

 Intelligent Automation Solutions. CTSH applies AI and Machine Learning
technologies to standardize repeatable tasks. Applications across mortgage
document processing, insurance claims processing, medical claims management.
CTSH robots based on its own automation technology as well as leverage
partnership intelligent automation solutions.
 Dynamic Workflow Management, applies image recognition, artificial
intelligence, machine learning, and process automation to modernize and
automate workflows. Applications across loan origination, servicing, and support
functions workflow and claims processing.
 Artificial Intelligence-enabled Robotic Investment Advisor. CTSH deployed the
platform across a leading BFS client, to enable the client achieve its goal of
doubling retail assets under management by 2020
Additionally, CTSH has opened global ‘Collaboratories’ across NY, London and
Amsterdam to deploy AI (and other digital) applications.
Notable Industry Collaborations. 1) CTSH has collaborated with Microsoft and

Amazon to deploy the latter’s AI and Machine Learning tools to client specific use
case and demand. 2) Separately, the company has also collaborated with Artificial
Solutions, a specialist in Natural Language Interaction (NLI) to integrate its
Artificial Solution’s Teneo’s platform with CTSH’s consulting, SI and support
expertise to offer enterprises AI-based conversational channels to interact with
customers and employees.
Mark MurphyAC Cornerstone OnDemand (CSOD US, N)

(1-415) 315-6736
mark.r.murphy@jpmorgan.com Cornerstone acquired Evolv ($43M in Oct 2014), a machine learning and data
J.P. Morgan Securities LLC science platform for helping customers make workforce decisions, e.g. analyzing
data to evaluate skills, experience, and personalities for jobs. In Sept 2015,
Cornerstone announced its Insights solution based on Evolv, which predicts risks
from employees who haven’t finished a training course, for example, and offers
predictive succession planning.
Mark MurphyAC Coupa Software (COUP US, N)

(1-415) 315-6736
In October 2017, Coupa acquired assets from Deep Relevance, which uses AI-based
behavior and relationship analytics to help detect employee and collusive fraud, or
other suspicious transactions. The acquisition will help customers create fraud
profiles based on analyzing customer and aggregated community data for expenses,
purchase orders, and invoices. This profile score and related spend transactions can
81
(44-20) 7134-5420 27 November 2017
then be used to alert a company’s internal auditors or finance department for further
review and action.
Stacy PollardAC Dassault Systèmes (DSY FP, OW)

(44-20) 7134-5420
In our view, Dassault is ahead of the curve with regard to AI. The company has been
integrating machine learning into a number of its core functions for years. As early as
2001, Dassault introduced Knowledgeware for PLM into CATIA, an application
incorporating AI. Today, AI is truly embedded into Dassault’s 3DEXPERIENCE
Platform and even into the data model.
As we look across Dassault’s solution portfolio, more than 80% of products run on
the 3DEXPERIENCE platform; a collaborative and unified platform with
embedded machine learning (ML) & artificial intelligence (AI). The company is
at a stage now where re-programming and optimizing algorithms is part of the
regular routine. Arguably, ML & AI is built into the way the company imagines and
codes its products, indeed, into the very fabric of its business model. The company’s
tag line “If We” even alludes to AI, in a sense.
The edge for Dassault lies in its deep industry knowledge. The company has
extensive expertise in Transport, Aerospace, Industrial Equipment (and other
sectors), as well as the associated characteristics/specifications of the digital format.
Last year Google X (subsidiary of Alphabet Inc.) chose to partner with Dassault,
taking the EXALEAD product, which specialises in big data search of structured and
unstructured data. Dassault was able to offer unique contextual understanding of
engineering, components and material physics – which Google could not do.
Below we show how Dassault is using ML & AI in its current product set:
 CATIA – Dassault’s flagship 3D Computer Aided Design (CAD) software;

powered by the 3DEXPERIENCE Platform and tailored to manufacturing
organisations. In terms of embedded AI, Design Robots within CATIA
continuously analyse what the engineer is doing, predicting what elements might
be useful and offering a menu of best design options. CATIA's algorithms are
constantly incorporating data (product specification, material availability, input
constraints and so on) and using this information to generate designs, as well as
suggesting alternatives based on input requirements, viability of materials, etc.
The software can also do this at the level of the supply chain – meaning the
engineer is encouraged to design using parts which can be sourced (rather than
doing design rework when supply shortages are discovered later in the process).
 SIMULIA – realistic simulation, finite element analysis, multiphysics and
multiscale. Think assessing the safety and reliability of products and materials
(e.g. ship interacting with the water) before bringing them to physical prototypes.
 DELMIA – Dassault’s digital manufacturing, virtual twin and supply chain &
operations solution. Within DELMIA, the Operations Intelligence program is
basically pure AI. Its algorithms tap into operational research, factoring in a
variety of specifications, from air temperature, to viscosity, material strength, etc.
The software's Predictive Analytics solutions also enable real-time analysis and
maintenance within the industrial environment. For example, in case of
operational disruption (e.g. faulty machine or supply chain constrains), shop floor
processes can quickly be re-scheduled or adopted to assure utilization and
efficient use of resources.
82
(44-20) 7134-5420 27 November 2017
 Quintiq – offers supply chain planning and optimization to help customers adapt
to the constant technological, regulatory and environmental changes. The supply
chain of the future will be connected, intelligent and sophisticated. Quintiq's
solution combines predictive analytics, optimization and cloud-based services on
a single system to enable an end-to-end planning experience. The software helps
plan and optimize workforces, logistics and production. For example, Quintiq
software was used by DHL to develop a dynamic route planning solution that
helped the company reduce tour duration by 8% and mileage by 15%. Quintiq
also helped Brussels Airport reduce the number of complaints from airlines by
90%.
 Information Intelligence Apps - EXALEAD has the capability to apply
advanced semantic processing to web-scale data. The solution relies heavily on
machine learning and AI. EXALEAD OnePart, a sourcing and standardization
intelligence application within the suite, indexes product part information from
different sources, sites and projects, and then reconciles, analyses and interprets
this information (with advanced semantic technology) in order to generate
insights used for prototyping, developing and testing.
In the not too distant future…

 Life Sciences. Dassault is already active in this space, for example The Human
Heart simulation is an example frequently referred to. When you start to design
and simulate virtual drugs that don’t yet exist, on virtual human cells or organs, in
order to treat a disease that doesn’t exist, you can see the potential. This type of
simulation can drastically reduce costs, testing time (and animal testing) and
overall time-to-market.
 Virtual Twin / Virtual Worlds. These are becoming more and more precise, and
AI helps to test new scenarios in a simpler, cheaper and faster way. When you
know you have the capability to regenerate, in a few hours, a different shape of
car, a different model specification, a modified engine, and then run it again on a
new set of roads which are now wet from the virtual rain (to test the tyre
traction), again, you can sense the vast potential of the software. You can
simulate every aspect involved in the development of any product, process or
system before even thinking about creating a physical prototype. The virtual
world has the potential to generate an immense degree of innovation and cost
savings. Thanks to enhanced computing power, extensive availability of data and
more advanced algorithms, Artificial Intelligence is able to enhance the virtual
experience.
 Generative Design for 3D printing. Software can be engineered to define a set
of constraints. When you combine the ML & AI with these constraints and
operational specifications – it can compute a new shape, using the laws of physics
(many ideas of which humans couldn’t comprehend or compute on their own).
Engineers can then make small tweaks. Though Dassault will do the generative
design part; based on time, cost, size, weight – and compute and compute until it
creates a structure which is aligned to the constraints that have been set. Once
design, construction, simulation, evaluation and creation from an operational
perspective have been completed, Dassault’s software will then be embedded into
the machines. Its software will be able to generate software that will be pushed to
the robot.
83
(44-20) 7134-5420 27 November 2017
Not Covered Face++/Megvii (Private company)

Established in 2012 by Mr. Yin Qi, a PhD from Columbia University with working
experience in Microsoft, Face++ engages in the development of deep-learning based
computer vision technologies. In 2017, the company completed Round C financing
of US$460 mn, led by China Venture Capital Corporation, Foxconn and Ant
Financial.
Face++ has more exposure to financial industry, compared to other players. Its
face recognition solution has been incorporated into Alipay, the largest online
payment platform in China, for account login and password resetting. Unlike Apple's
FaceID, the solutions from Face++ and other competitors are 2D-based by using
selfie camera to capture the facial information without mesh modeling. Therefore,
they are not qualified to replace password, and have to work with other
authentication methods, e.g. input the registered phone number, to complete the
online payment. Face++ is actively working with its partners on 3D solutions.
Face++ also developed vision systems for robotics. The service robots equipped
with Face++'s solution have been adopted by Bank of China to perform some
preliminary client services such as VIP recognition and client guidance.
Face++ has over 250+ R&D employees with a self-developed database of 120mn
images of faces and other objects to train the algorithm. Total revenue was above
RMB100mn in 2016, up 500% yoy.
Figure 57: Face recognition in Alipay Figure 58: Vivo Face Access with Face++ solution
Source: Company data
Source: Company data
Doug AnmuthAC Facebook (FB US, OW)

(1-212) 622-6571
Mark Zuckerberg considers AI to be one of the company’s 10-year bets, and believes
that AI should replicate—and exceed—human senses such as vision and hearing so
that FB is better able to serve users. Facebook has been using AI in photo-tags for
facial recognition since 2010. In 2013, FB created its Facebook AI Research (FAIR)
team to focus on developing and using AI. In 2015, FB launched its Applied
Machine Learning team (AML) to infuse AI into FB products and focus on language
tech, core machine learning, computational photography & perception. FB has
developed a dedicated Machine Learning Platform “FB Learner Flow”, which has
been used for products within Search, Ads and NewsFeed. FBLearner Flow spans
84
(44-20) 7134-5420 27 November 2017
several areas, including infrastructure, algorithms, and applications built on top of the
platform. In 2015, FB acquired Wit.ai, a company that builds developer tools for
NLP, to integrate NLP tools into front-end of the Messenger Platform.
 Deep Text, In June 2016, FB announced DeepText, a deep learning-based AI

engine built to understand sentiment and context behind text on the social
network. FB is using DeepText on its News Feed to understand the content in
thousands of posts per second across more than 20 languages. DeepText is also
being used in the Messenger app to detect intent of text as well as to power AI
chat bots. DeepText has the potential to better understand posts and can extract
intent, sentiment, and entities, using mixed content signals like text and images,
and can automate the removal of objectionable content like spam. This deep
learning process would allow FB to understand people's interests better and help
it in recommending content.
 AI on NewsFeed. FB created a Language Tech team as part of its FAIR group in
2013 to tackle problems related to speech recognition, natural language
understanding and language translation. The team develops ML models to train
the algos that power FB’s NewsFeed within hours, using trillions of data points.
FB updates its learning models every 15 mins to 2 hrs so that it can react quickly
to current events. Machine learning models rank ads, personalize content on
News Feed, filter out offensive content, highlight trending topics, rank search
results etc.
 “M” suggestions on Messenger, In April 2017, FB rolled out “M”, an AI-based
assistant embedded within the Messenger app to its US users and since has been
released in half a dozen countries. M Suggestions uses deep learning to
understand context and intent in a chat and comes up with suggestions including
send stickers, pay/request money, share location, make plans, get a ride—option
to book Lyft/Uber, save content, initiate voice/video calls, sharing GIFs, quick
replies etc. FB aims to transform Messenger into a conversational platform to
power Chatbots within the Messenger framework. These bots can handle
customer-service requests queries and similar requests.
 Moments, Moments, FB’s photo-sharing service, uses FB’s image recognition
models to let users create private photo albums with a select group. At Moments'
launch, FB revealed that its image recognition models could recognize human
faces with 98% accuracy, adding that the algorithm could identify a person in one
picture out of 800M in less than 5 secs.
 Other efforts include Translations, Speech recognition, Photo Image Search,
Real-time video classification, etc. FB has built an AI-based automatic
translation system that helps people to see translated posts in their NewsFeed. In
Aug 2017, FB announced that its AI models are processing 4.5B+ translation
requests daily. FB also plans to incorporate speech recognition more deeply into
its main app within the next five years and make it possible to give the app voice
commands to conduct searches or complete activities like posting a group photo,
removing red-eye or talking to a virtual assistant etc. FB introduced automatic
image classifiers that allow users to search for photos based on the image content
instead of relying on tags or surrounding texts. Similarly, FB is working on
applying computer vision techniques to organize content and provide the ability
to classify live videos in real time.
85
(44-20) 7134-5420 27 November 2017
Sterling Auty, CFAAC FireEye (FEYE US, N)

(1-212) 622-6389
This is a good example of utilizing machine language approaches to security
intelligence. The company’s Central Threat Intelligence product conducts over 14
million analyses per hour using machine language approaches. In addition, the
company has adopted the machine learning approach inside of SmartVision, a
module that can be utilized within the company’s network security (NX) solution to
monitor and detect attacks that are looking to spread laterally through an organization
using what is called east-west traffic.
Sterling Auty, CFAAC Fortinet (FTNT US, OW)

(1-212) 622-6389
Similar to others, Fortinet is utilizing machine learning capabilities to drive the
intelligence component (FortiLabs) that supports its Fortinet fabric which aims to tie
together the product portfolio into more of a platform approach.
Stacy PollardAC Hexagon (HEXAB SS, N)

(44-20) 7134-5420 As building blocks for its analytics platform, Hexagon is investing it is own
proprietary specific algorithms and machine learning frameworks that run on high
performance dedicated hardware (such as NVIDIA). The following main application
areas have been addressed by pilot projects/products:
 Object/pattern detection in images (Agriculture, Mining, Construction, O&G,

Metrology).
 Video analytics (Public Safety, Digitalisation and Classification applications,
etc).
 Automated point cloud processing (various applications for object recognition,
tracking and context interpretation)
 Predictive maintenance (Mining, Agriculture, Construction and general
machinery)
 Productivity analysis & optimisation for many applications throughout Hexagon's
vertical solutions.
In addition, Hexagon has developed its own IoT platform (Connectivity, Advanced
Analytics, Mobility and Visualisation). Hexagon has application-tuned advanced
analytics modules using ML and DL techniques that:
 Run on the edge, cloud and/or on-premises (e.g. For Public Safety devices and
Control Rooms, Autonomous trucks, Scanning and Metrology devices, etc).
 Can be embedded into Hexagon’s middleware Edge Frontier (e.g. anomaly
detection, predictive models, etc).
 Enable cloud and edge analytics (e.g. for condition monitoring, predictive
maintenance, fleet management, etc.).
Mark MurphyAC HubSpot (HUBS US, OW)

(1-415) 315-6736
HubSpot has begun to speak about AI/ML in a more meaningful way, since the
introduction of GrowthBot (an AI chat bot) from its experimental HubSpot Labs. As
the company devotes more resources into R&D, the conversation has broadened
beyond chat bots, and into use-cases such as lead scoring for its Sales and CRM
86
(44-20) 7134-5420 27 November 2017
products. HubSpot acquired Kemvi (July 2017) for sales research, and Motion AI
(Sept 2017) a visual chat bot builder.
Tien-tsin Huang, CFAAC IBM (IBM US, N)

(1-212) 622-6632
IBM arguably kick-started the latest AI focus (aka Cognitive) with Watson, first
introduced in 2011. The company focuses on offering Watson capabilities and
solutions to enterprises only, unlike many other product companies (such as Apple,
Amazon, Google) that offer solutions for consumers as well as enterprises.
IBM’s Watson solutions represent a set of comprehensive and adaptable intelligence

systems with applications ranging from oncology to customer support using open
APIs. Watson is configured to analyze both, clients’ in-house as well as public and
IBM proprietary data, which we believe differentiates IBM from a lot of competitors.
IBM, through its recent acquisitions of The Weather Channel, Merge etc. is quietly
building its proprietary data that it believes can provide higher value to customers.
IBM offers Cognitive solutions across healthcare, education, BFSI, media, and retail
verticals, amongst others, based on the following products and services:
 Conversational Chatbots. Virtual agents across a variety of channels, including

mobile devices, messaging platforms. Chatbots built at scale for enterprises
providing automated services.
 Data discovery. Interpret data to monitor trends and surface patterns using cloud-
native insight engine. Complex architectures can also be built using advanced AI
functions such as natural language queries, passage retrieval, relevancy training,
relationship graphs and anomaly detection. Data discovery can also be infused
with news search engines.
 Natural Language Understanding and Processing. Analyze text to extract meta-
data from content such as concepts, entities, keywords, categories, relations and
semantic roles across 9 languages and return both overall sentiment and emotion
for a document.
 Watson Knowledge Studio is a cloud-based application that enables developers
and domain experts to collaborate and create custom annotator components for
unique industries by analyzing mentions and relationships in unstructured data.
 Visual Recognition. Tag, classify and search visual content using machine
learning. Custom classifiers using own image collections can also be applied.
 Speech. Convert both audio and voice from 7 languages into written text in real
time. Can also convert written text into natural-sounding audio in a variety of
languages and voices.
 Language Translator and Classifier. Translate text from one language to another
and also be able to classify it. Take news from across the globe and present it in
desired language, communicate with customers in their own language.
 Personality and Tone Analyzer. Predict personality characteristics like
customers’ habits and preferences through written text. Also analyze emotions
and tones in what people write online, like tweets or reviews (social listening).
This service can also be integrated with chatbots.
In addition to vertical specific solutions, IBM also established AI solutions for public
sector clients, notably including defense logistics solution and law enforcement
solutions (for public safety and policing).
87
(44-20) 7134-5420 27 November 2017
Separately, IBM Watson has specific horizontal applications solutions like Customer
Engagement, Recruitment & Talent acquisition, Employee engagement etc.
Notable Industry Collaborations. 1) Integrate Salesforce CRM platform with

Watson's AI engine 2) 10 year partnership with MIT to research on AI 2) With SAP
on AI in procurement 4) with Twitter to analyze tweets relevant for enterprise clients.
Similar to Alexa and other consumer focused platforms, IBM’s platform allows
developers to build use cases/applications on Watson that they can offer to
consumers/enterprises.
Notable Current R&D projects in AI. 1) Include Watson Beat - Machine Learning
algorithm that learns to create music. IBM researchers are teaching a complex neural
network to understand music theory, structure (pitch, time signature, and key
signature), and emotional intent and co-create music with a human partner). 2)
Gesture and Visual Recognition (for applications across Medical Image Analysis). 3)
AI-based supercomputing system in collaboration with U.S. Air Force Research
Laboratory (AFRL). 4) AI-based Cognitive Assistant for visually impaired 4) AI for
Cancer detection - to analyze large amounts of imaging and text in electronic health
records (EHR). 5) Block-chain applications.
Cognitive in GBS (IT Services business)

IBM is also helping clients understand goals from AI deployment, train the “robots”,
and help implement the platform. The company also provides services such as
application automation, repetitive task automation (RPA, helpdesk/testing assistants),
and Cognitive analytics services to its clients.
Not Covered iFlytek (002230 CH, Not Covered)

iFlytek was established in 1999 by a group of speech scientists and engages in the
development of algorithms and applications on NLP.
iFlytek’s core NLP technologies include 1) speech synthesis engine, to convert

text to speech; 2) speech recognition engine, to recognize the speech of human
beings (including dialects) and convert it into text; 3) voiceprint recognition engine,
to identify the speaker based on the voice waveform. The algorithm compares the
voice of the speaker with the voiceprint registered in the database and determines
whether they match or not; 4) cloud platform, to provide SaaS-based NLP solutions.
Education is the key sector to monetize the AI technology, with current revenue
contribution of 30%. iFlytek offers a comprehensive smart campus solution which
could 1) customize study plans for each student based on the data analysis of their
historical performance; 2) evaluate the test by machines through the recognition of
handwriting; 3) improve the efficiency of English and Chinese teaching through
interactions between students and machines.
Other verticals include healthcare (voice health record) and court (convert speech to
text to replace court clerk).
88
(44-20) 7134-5420 27 November 2017
Figure 59: iFlytek 1H17 revenue breakdown

Customer
System integration service/interaction
28% software
15%
Education
30%
Big data and
services
9%
Public security and
smart city Internet applications
6% 12%
Source: iFlytek
Figure 60: iFlytek’s smartphone applications
Source: iFlytek
Sterling Auty, CFAAC Imperva (IMPV US, N)

(1-212) 622-6389
The CounterBreach solution focuses on how users interact with enterprise data and
utilizes machine learning to detect insider attacks one of the most difficult items to
protect against, but one of the most prevalent sources of cybersecurity issues. The
goal is to use the machine learning to identify inappropriate access to data that could
lead to data breaches.
Stacy PollardAC Indra (IDR SM, N)

(44-20) 7134-5420
Indra’s AI capability is incorporated into its platform iThink; a solution designed to
manage the intelligence life cycle in a global way, with a particular emphasis on
security. Indra's platform underpins a set of modules that enable data aggregation and
capture from structured and unstructured data sources, as well as the subsequent
analysis and representation of the data. Figure 61 below reflects the components of
Indra’s iThink stack.
89
(44-20) 7134-5420 27 November 2017
Figure 61: iThink Technology Stack
 Technological Platform – which is composed on a set of modules, and the

integration of commercial tools.
 Data Acquisition – the area of iThink that captures information. This is done
through a web crawler which processes and categorises information from
structured and unstructured sources. Manual data entry and also a content
translation module support this process.
 Information Structuring – locates entities in documents and structures their
content, identifying relationships. Assisted analysis & visualisation, through
graphical user representation, helps to structure the information before it can be
interpreted and reflected in a visual way.
 Knowledge Management – segmentation of the information, with the capacity
to correlate data and create meaningful information. Geographic representation
(e.g. spatial zones, influencer areas) is supported here.
 Intelligence Production – identification of patterns and trends through the
statistic module. The monitoring module supports the assessment of warning
indications is able to assess the severity of an identified issue. The analysis
module (which uses semantic technologies) also helps to make sense of the data.
Indra also engages in innovation projects. A recent example is its involvement in

the European BeCamGreen project, which aims to develop a detection solution
based on computer vision and big data. The solution will primarily be used for
monitoring traffic – e.g. classifying vehicle types, identifying the number of
occupants a vehicle contains and consequently helping to identify mobility patterns.
The solution will help policy makers and traffic monitors identify patterns and
administer strategies (such as access restrictions dependent on number of passengers,
vehicle type, license plate number etc.) aimed at reducing traffic congestion and
incentivising the use of public transport where warranted. The solution leverages
computer vision technology, deep learning & multispectral analysis (used in
detecting human skin), as well as combining a big data engine to identify and predict
traffic situations by utilising data in real-time. We view this solution as the type of
application that could be used in digital cities of the future.
90
(44-20) 7134-5420 27 November 2017
Stacy PollardAC Micro Focus (MCRO LN, N)

(44-20) 7134-5420
Following the $8.8bn merger with HPE’s software business, we look at the combined
entity’s AI capability, which stems mainly from assets previously part of HPE
Software’s portfolio.
 IDOL – acquired by HPE software, but originally from Autonomy, the IDOL
platform is capable of supporting and analysing approximately over 1,000
formats of data. Built on machine learning & deep neural network algorithms,
IDOL is aimed at searching through and rendering insights from audio, visual,
video and text based data to deliver predictive information.
Figure 62: Typical use cases for IDOL
 Vertica - Micro Focus has recently released Vertica 9 (Vertica was formerly HPE
Software), the latest version of its enterprise level, big data analytics platform with
embedded in-database machine learning capabilities. Vertica supports the entire
predictive analytics process with massively parallel processing architecture and
end-to-end machine learning management functions. Vertica 9 is able to analyse
large volumes of unstructured data and generate insights. The platform is also
intended to simplify the creation and deployment of machine learning models.
91
(44-20) 7134-5420 27 November 2017
Figure 63: Vertica Architecture
Mark MurphyAC Microsoft (MSFT US, OW)

(1-415) 315-6736
Microsoft offers the Microsoft AI platform, which is an overarching framework
enabling organizations to create their own intelligent tools. Microsoft AI platform
consists of three main components: Microsoft Cognitive Services, Microsoft
Cognitive Toolkit and Microsoft Bot Framework. The Cognitive Services component
includes Vision (image processing algorithms that can identify the content of an
image), Speech (Speech recognition, Speech-to-text), Natural Language Processing
and more. The Bot Framework provides an integrated environment for bot
development that allows customers to build bots quickly using templates. Microsoft
also allows bots to interact with the cognitive services, to further boost its
intelligence. The Cognitive Toolkit allows customers to harness the intelligence
within large data sets through deep learning. Microsoft also provides a Machine
Learning Studio which is a cloud based visual drag-and-drop authoring environment
that allows users to build, deploy and share predictive analytics solutions.
Paul Coster, CFAAC NICE Ltd. (NICE US, N)

(1-212) 622-6425
paul.coster@jpmorgan.com Nice Systems is a leading supplier of customer experience, workforce management,
J.P. Morgan Securities LLC and cloud-hosted contact center solutions. The company’s Actimize division also
positions Nice as a leader in software-based solutions that fight financial crime,
money laundering and ensure regulatory compliance. With the acquisition of Nexidia
in early 2016, the company has developed neural network technology designed to
perform large-scale speech recognition and analysis, turning vast amounts of
unstructured customer interactions (captured in the contact center) into data and
actionable intelligence. In the case of contact centers, this technology (customer
experience analytics) enables increased sales effectiveness, reduces customer churn,
and ensures compliance with regulation and policy.
92
(44-20) 7134-5420 27 November 2017
In addition, NICE is also introducing robotic process automation (RPA) into low-
value, high-volume (back office) workflows, typically found in the financial services
industry. Attended robots are digital assistants that collaborate with analysts in
completion of evidence gathering in case management. Unattended robots are used to
gather data from legacy systems and update enterprise systems. We believe NICE’s
differentiation will hinge upon combining analysis of unstructured speech data with
traditional structured data to address more difficult process challenges, ultimately in
support of cognitive decision management (using data mining, pattern recognition
and cognitive computing).
Finally, in September, NICE introduced an “Open Framework Ecosystem for

Cognitive Robotic Automation”. This platform combined third-party optical
character recognition, chatbots, voicebots and machine learning technologies with
NICE’s in-house text analytics and natural language processing to enable customers
to expand and improve customer self-service and process automation. For example,
NICE’s platform provides real-time customer data to chatbots enabling execution of
bespoke requests.
Mark MurphyAC Oracle (ORCL US, OW)

(1-415) 315-6736
Apart from using AI and Machine learning across many parts of its cloud
applications, Oracle is now using AI and machine learning to automate
administration of its latest Oracle Database 18c making it a self-driving or
autonomous database. This new database is expected to automatically provision,
upgrade, patch and tune without any downtime, eliminating a lot of human labor as
well as human error. Oracle recently also announced a Machine Learning and
Advanced Analytics platform as a cloud service thus competing with the likes of
Cloudera and Microsoft.
Sterling Auty, CFAAC Palo Alto Networks (PANW US, OW)

(1-212) 622-6389
The company has focused the use of machine learning into its endpoint protection
solution called Traps. In fact, the use dates back prior to the acquisition of Traps and
has been enhanced through the acquisition of LightCyber earlier in 2017. There are
several private companies that have focused on the use of machine language for
endpoint protection to gain market share against entrenched legacy providers like
Symantec and McAfee. Similar to FireEye, the company is also using the approach
in its cloud-based intelligence and analytics area as a foundation for the log
collection and analysis it is providing to customers.
93
(44-20) 7134-5420 27 November 2017
Stacy PollardAC Sage (SGE LN, OW)

(44-20) 7134-5420
Within its own products, Sage is looking to develop machine learning and AI based
products, tailored for the purpose of reducing financial administration for business
builders, from start-ups to enterprise.
Sage Pegg - accounting chatbot
Sage’s AI capability is currently best reflected through Pegg, an accounting Chatbot,
which launched at the Sage Summit in July 2016. Users are able to log an expense or
income, add receipts and Pegg will record (through messaging applications like
Facebook messenger and Slack) the information for them. Pegg also uses AI to
recognise nuances and patterns in the way its user operates their business, and so
through more interactions with Pegg, the more the bot can learn. Pegg tailors itself to
the user and can also provide recommendations.
Source: Sage.
Mark MurphyAC salesforce.com (CRM US, OW)

(1-415) 315-6736 Created in September 2016, Salesforce Einstein is a layer within the Salesforce
platform that infuses Artificial Intelligence features and capabilities across all
Salesforce Clouds. Einstein takes care of the data prep, modeling, and infrastructure
needed to embed and scale predictive models throughout customers’ Salesforce
workflows. Since its inception, salesforce has been expanding the application of AI
across its various modules – Sales, Service, Marketing, Community, Analytics and
Platform. In the Sales cloud, Einstein can automatically prioritize leads by scoring
them based on history and past deals as well as showing the likelihood of a closure
for a deal based on customer sentiment. In Service Cloud, Einstein can recommend
responses to an issue, automate case classification or predict close case resolution
time. Einstein enhanced the Marketing Cloud by optimizing email send times as well
as predicting audience segment that share common traits, while it added Individual
Product recommendations in the Commerce Cloud. Recently, salesforce also
introduced myEinstein, which is a declarative platform to enable customers to
develop custom AI applications. myEinstein includes two new services – 1) Einstein
Prediction which allows customers to create custom AI tools that can predict
outcomes for any field or object in salesforce; and 2) Einstein Bots which can be
used to support customer service workflows by automating tasks such as answering
basic questions and acting as the first point of contact.
Stacy PollardAC SAP (SAP GR, OW)

(44-20) 7134-5420
stacy.pollard@jpmorgan.com SAP wants to be known as one of the big players in enterprise-level AI/ML
J.P. Morgan Securities plc solutions, competing with the likes of IBM Watson, Microsoft Azure Cognitive
Services, and Salesforce Einstein. Given SAP’s unique expertise in ERP and
business applications, the company is in a strong position to embed AI into numerous
functional applications (e.g., CRM, HCM, SCM, and certainly into analytics).
Likewise, since SAP's software creates and evaluates much of the data generated
within an enterprise, SAP also has a unique contextual understanding of what data
has been collected, what it is used for, and how automation, analysis and various AI
tools could enhance enterprise efficiency.
Embed, Stand-alone, and Partner

We believe SAP will both embed AI functionality into its core S/4HANA suite AND
offer stand-alone AI tools via Leonardo. In addition, SAP has taken a partnership
approach to developing machine learning capabilities, instead of doing it all in-
94
(44-20) 7134-5420 27 November 2017
house. For example, SAP uses Google open-source project TensorFlow for some of
its machine learning algorithms and NVIDIA for the hardware to train these
algorithms.
SAP S/4HANA already contains numerous built-in analytics and AI-type

functionalities, and in the most recent release (version 1709) SAP has added
additional ML functions, for example:
 SAP Cash Application software (introduced with version 1709) learns matching
criteria from a company’s historical financial clearing data to automatically pair
invoices with incoming payments.
 SAP Fiori apps for contract consumption (also introduced with version 1709)
predict contract expiration or goods consumption ahead of time, which enables
more effective supplier negotiations and relationships.
Other AI examples include:
 SAP BusinessObjects Predictive Analytics Integrator –interacts with

application data to create Predictive Models and generate procedures to enable
the consuming application to generate predictions at runtime. No data is created
or save within the integrator; the data management and security of application
data and associated predictions is managed by the consuming applications.
 Smart resume matching in Fieldglass.
 Kore.ai Customer Service Bot for SAP Hybris is a “smart assistant” that
enterprises can roll out for their customers to have a more human-like
conversational interface for creating, managing and escalating their own service
tickets. Ultimately, it automates much of the service ticketing process.
 Logistics Optimization, using AI with supply chain and IoT technology. For
example, Citrosuco of Brazil (supplier of orange juice) is using SAP Leonardo in
combination with other SAP tech to connect farms to manufacturing site and
optimize transportation logistic worldwide.
 SAP Brand Impact, powered by NVIDIA deep learning, is able to analyse brand
attributes (e.g. logos) in almost real-time and with high accuracy, enhancing the
ability to assess marketing campaign effectiveness.
Leonardo innovation stack leads with AI

SAP offers much of its AI & Machine Learning capabilities through the Leonardo
platform (named after Leonardo DaVinci), a broad-based digital innovation suite
which allows customers to take advantage of emerging technologies like AI, ML,
advanced analytics, IoT and blockchain. Leonardo is built on top of SAP’s open
platform-as-a-service (PaaS) offering, the SAP Cloud Platform. Below we outline the
Leonardo technologies and some of the capabilities they have to offer:
 Machine Learning – SAP Leonardo Machine Learning enables the intelligence

in SAP Leonardo by learning from data (deep learning). It embeds intelligence
into existing enterprise applications and enables entirely new applications. For
example, SAP’s Service Ticket (part of SAP Hybris) Intelligence application
which processes inbound social media posts, e-mails, and other channel
interactions by automatically determining classifications, routing and responses.
SAP’s Customer Retention application can anticipate customer behavior (e.g.
95
(44-20) 7134-5420 27 November 2017
renewals), through the use of transactional data and digital interaction points. The
Leonardo Conversational AI Foundation can help customers build conversational
applications using natural language processing and machine learning algorithms.
 Big Data – collecting, processing and storing a wide range of data from both
structured and unstructured sources, at scale.
 Data Intelligence – connecting, aggregating and anonymising data to prepare it
for commercial consumption. Data can be used on its own; it can be
supplemented with partner, customer or industry data, and then offered out as
Data-as-a-Service (DaaS), offering a new revenue stream. Alternatively, the data
can be used to develop data-driven apps, or algorithms can be applied to provide
insights.
 Analytics – this area includes business intelligence, predictive analytics and
performance management capability. SAP’s BusinessObjects BI platform, which
enables clients to tailor predictive models to their specific business requirements,
characteristics and functionality, is able to enhance insights and decision making.
 IoT – Connecting devices, people and processes with back end systems in real-
time. For example, SAP’s Vehicle Insights application allows the user to monitor
live vehicle conditions and run, connected car analytics.
1. IoT Foundation - this component will typically exist in the cloud and will
encompass big data applications, integration capabilities, as well as libraries
of machine learning and AI models.
2. IoT Applications - all applications related to IoT, for example, in the
connected products space, there would be supply network applications,
inventory management applications, logistics safety apps and so on.
 Edge Computing - an area of Leonardo entailing data capture at the edge.
Through sensors and other communication pathways, data will be collated,
aggregated and analysed in real-time. SAP’s acquisition of edge computing
system, Plat.One, has enhanced SAP’s capabilities in processing IoT data.
 Blockchain – early stage blockchain technology is embedded in the SAP Cloud
Platform, and SAP’s blockchain-as-a-service (BaaS) pilot provides registered
customers with a way to pilot the technology. It is important to note this
technology is still very much in its early stages, though offering a channel to
interact with it is important, particularly as adoption begins to pick up. To give a
sense of blockchain potential, the World Economic Forum is forecasting that 10%
of global GDP will be stored in blockchain by 2027.
Leonardo will also act as a bridge, interlinking SAP’s six categories: Connected
Products (insights, supply networks), Connected Assets (predictive maintenance,
distributed manufacturing), Connected Fleet (logistics), Connected Infrastructure
(networks and grids), Connected Markets (agriculture, smart traffic, cities, etc.), and
Connected People (healthcare, sports, connected home), to create a truly holistic
view of the enterprise.
96
(44-20) 7134-5420 27 November 2017
Figure 64: SAP Leonardo Bridge
What’s special about Leonardo?

There are many machine learning and AI offerings in the market (Google, IBM,
Baidu, to name a few), so how will SAP compete? Leonardo sits within the system of
record and does the analytics and AI (transactions and analytics in the same
environment) in-context, in real time and without security risks. Advantages of
Leonardo: 1) SAP’s IoT does not move data from system to system, but rather keeps
it one place, safeguarded. 2) Analytics occurs within Leonardo; then it can
automatically create a runtime solution which is immediately applied back into the
system (the ERP system, the system of record). This means a single system is
creating and running transactions, analysing itself, and then automatically acting
upon the solution (by say ordering a replacement part and blocking off the engineer’s
time to do the repair). 3) SAP deeply understands the enterprise data its customers
create and collect. The goal is end-to-end automation that links through the enterprise
from customer, to production, through to logistics, finance and employee.
Figure 65: SAP technology stack
How can customers use Leonardo?

 Self-Service Express - customers are able to select implementation of working
code for predefined business use cases. SAP has a library of pre-built use cases,
with the launch templates being for the popular predictive maintenance, or vehicle
telematics use cases. Customers can be up and running within eight weeks.
97
(44-20) 7134-5420 27 November 2017
 Open Innovation Edition - aimed at finding new solutions for clients, moving
from an initial concept to a workable prototype within nine weeks. Currently,
SAP’s Build.me accelerator set can be used to create a closed loop circle across
the application mockup and prototyping process.
 Enterprise Level - designed for existing customers already utilizing premium
SAP support packages. This is an extension of the open edition, and involves
developing multiple solutions in parallel with the customer. Solutions will be
tailored to each business problem, and customers can either host SAP on site or
visit a global design centre for a day of brainstorming, resulting in a working
prototype using SAP's build tool.
Not Covered SenseTime (Private Company)

SenseTime is an AI start-up in China, primarily focusing on the development of
computer-vision based AI applications. The company was established in 2014 by
Professor Tang Xiaoou and Dr. Xu Li from Chinese University of Hong Kong. In
2017, SenseTime closed Series B funding totaling to US$4bn. By leveraging 5,500
NVIDIA GPUs and 10 GPU clusters, SenseTime has developed a deep learning
platform, which enables the company to customize AI solutions for different
verticals.
Video surveillance is the core sector of SenseTime, with comprehensive algorithm

solutions that cover pedestrian and vehicle detection, characters recognition (e.g.
gender, age and race) and people counting/density estimation. Thanks to its strong
R&D capability, SenseTime has formed extensive collaborations with leading
surveillance camera players in China, such as Uniview.
Smartphone is another vertical where SenseTime has a strong footprint. The

company indicates that the fidelity of its existing face recognition solution is
comparable to an 8-digit password, which has already been adopted by leading
Chinse OEMs in the flagship models to unlock the phone. Qualcomm also plans to
incorporate this algorithm into its high-end smartphone AP. Other smartphone
applications include portrait beatification/makeup and face grouping for album.
In addition, SenseTime works closely with financial institutions to enable remote

authentication, while it also engages in the development of autonomous driving
system, which is still at early stage.
SenseTime has an R&D team of over 800 people. In terms of corporate-published

academic papers on deep learning, SenseTime ranks No.2, behind only Microsoft and
ahead of Google, Facebook and BAT. Through its diversified industrial partners,
SenseTime has access to 10bn images across 18 sectors, which in turn sharpens its
algorithms to create a virtuous cycle.
98
(44-20) 7134-5420 27 November 2017
Figure 66: SenseTime's pedestrian and vehicle detection solution Figure 67: Portrait beautification/makeup solution for smartphone
Source: SenseTime Source: SenseTime
Andreas WilliAC Siemens AG (SIE GY, N)

(44-20) 7134-4569
Artificial Intelligence and Machine Learning is a topic of increasing relevance across
andreas.p.willi@jpmorgan.com
the Capital Goods sector. For most companies, the approach is to deploy bought-in
AI base technologies and their internal developments into their own products and
solutions (as embedded software). Siemens is the only company in our coverage that
has a substantial stand-alone (sold independent of hardware) software business with
€4.0bn of revenues in 2017 in addition to €1.2bn of digital services. With its
MindSphere IoT operating system, it has a platform aimed at internal and external
clients. The overall Siemens software and digital services business grew around 6%
organically, based on our estimates. Siemens expects 8% market CAGR from 2018
to 2022. The core of the Siemens software offering is in its Digital Factory business
with €2.6bn of revenues (2017, restated for IFRS15) with a full offering of
CAD/CAM and PLM software with a focus on industrial markets (automotive,
aerospace, process markets, semiconductor/chip design).
Artificial Intelligence is potentially a disruptive technology vs the traditional

automation software. Traditional automation systems tell machines and infrastructure
what do to through complex stacks of software, honed over years or decades with
industry specific vertical knowledge that provides high entry barriers. If machines
become self learning, the system changes fundamentally with the value of existing
software stacks declining while the field opens up to new competitors. China has
largely missed out on the automation opportunity over the past 20 years with no
domestic company that has a meaningful size or international presence. Artificial
Intelligence represents a potential opening for China to fulfill its ambitions to
become a major player in Automation/smart manufacturing by 2025, as stated by its
Made in China 2025 initiative.
For example, traditionally, a robot is "told" what to do through a set of preloaded

software relevant to the customer's industry which can then be adapted through
software provided by robot companies. With AI, a robot – after basic instructions are
provided – would learn itself how to optimize the task.
99
(44-20) 7134-5420 27 November 2017
Figure 68: Siemens Software and Digital Services Concept
Source: Siemens.
Siemens works with technology providers IBM Watson, Amazon, SAP, Microsoft
Azure and Accenture for AI/Digitalization.
Siemens’s view on Artificial intelligence in Industry: “computing like a machine,

deciding like a person”. Software is increasingly making automated decisions. In the
machine learning sub-discipline, training data to is used to enable algorithms to learn
the right outcome in line with human specifications. Artificial intelligence is based
on the perception of information that can originate from sensors, images, language
and text. From this information, the software draws its conclusions, learns, adjusts
parameters accordingly and generates hypotheses. In the end, it reaches a decision on
its own or makes a recommendation that human partners can use to underpin their
own actions.
What does artificial intelligence mean for Siemens? Siemens has been active in
this field for decades. Today, the company implements this technology in industrial
applications:
 Complex image recognition as used, above all, for interpreting the results of
computed tomography (CT) and magnetic resonance imaging (MRI).
 Autonomously learning, self-optimizing industrial systems such as those used in
gas turbines and wind farms
 Accurate forecasts of copper prices and expected power grid capacity utilization.
 In addition, intensive work is being carried out on physical, autonomous systems
for use in collaborative, adaptive, flexible manufacturing as part of Industrie 4.0.
Stacy PollardAC Software AG (SOW GY, N)

(44-20) 7134-5420
Within the area of AI, Software AG offers Apama, a pattern matching technology,
and the Cumulocity IoT Platform (subset of the Digital Business Platform), as well
as surrounding technology and tools like Zementis and Terracotta.
 Cumulocity IoT Platform is an open, application centric IoT platform offering

analytics and pre-configured solution accelerators (such as predictive
maintenance, condition monitoring and track & trace) on the customer’s choice of
SaaS, PaaS or on-premises. The platform includes secure device connectivity and
management, is device and network agnostic, and can be modified with new
technology as its user matures.
100
(44-20) 7134-5420 27 November 2017
 Apama is the pattern matching technology, providing CEP (complex event

processing). Apama Streaming Analytics offers rich analytics (aggregations,
temporal, filtering and location) blending real-time and historic data, rich
visualization, business dashboards, and high-performance messaging for any use
case and vertical - across mobile, web and IoT. Apama is used for extreme scale
and performance on top of in-memory architecture, and support predictive
analytics and models.
 Zementis is a connector between the data science coding world of Python, R,
Knime, etc. and the entire Digital Business Platform. Zementis has a decision
engine framework, uses open standard PMML and is focused on the operational
deployment of predictive analytics and data mining solutions. Applications
include fraud & risk scoring, sensor & device data processing, biometrics, etc.
 Terracotta is Software AG’s in-memory data management technology – for
speed and scale. It gives in-memory access to terabytes of data, enabling the
operationalization of historical big data and its blending with real-time streaming
data.
A few examples of customers using Cumulocity:
 Deutsche Telekom offers the rebranded Telekom "Cloud of Things" IoT

Platform (powered by Cumulocity) as the cornerstone of its M2M/IoT solution
business for enterprise in Europe.
 Lyreco fully automates the supply chain of its Nespresso premium coffee service
using real-time usage data to improve the customers experience and save costs.
Lyreco is using the vending machine (including telemetry devices and cellular
connectivity), stock and operating management application. Plus its fully
integrated in the company's SAP ERP system.
 Definitiv (distributor of medical equipment, particularly permanent cooling of
certain medicines, for example insulin) has rebranded Software AG's Cumulocity
IoT Platform Tenant to track real-time monitoring of temperature, usage and
batter level of each Definitiv mobile medicine cooler.
Industry specific platform: ADAMOS

Software AG has partnered with DMG MORI, Dürr, Zeiss and ASM PT to form a
joint venture called ADAMOS (ADAptive Manufacturing Open Solutions), which is
dedicated to Industry 4.0 and Industrial Internet of Things (IIoT). These German
partners also hope to attract other machine builders to become partners.
ADAMOS is an open IIoT platform that offers data autonomy and access to leading
software solutions. If provides the basis for employing digital services and new
business models, and optimizing production with the aid of big data analyses - all
specific to machine building as well as domain- and industry-specific applications.
Alexander MeesAC Sophos (SOPH LN, OW)

(44-20) 7742-3681
alexander.c.mees@jpmorgan.com Sophos (network and endpoint security for SMEs) has recently accelerated its
J.P. Morgan Securities plc Artificial Intelligence footprint with the $100m acquisition (Feb 17) of the
commercial software products business of US-based Invincea. The Invincea endpoint
security portfolio prevents, detects, and remediates zero-day and sophisticated
attacks, combining neural-network based machine learning and behavioural
monitoring to enhance detection through artificial intelligence and stop evasive
malware before damage occurs.
101
(44-20) 7134-5420 27 November 2017
Intercept X V2, the latest version of Sophos’ anti-ransomware platform,

incorporates and introduces onto the end-point, Invincea’s deep learning, predictive
capabilities; helping to identify and block advanced malware. The introduction of
deep learning and behavioural analytics into Intercept X should 1) Enhance quality of
detection and 2) Greatly improve false positives, which in turn will make the security
of the endpoint easier to manage.
Sophos is also using its deep learning capability in the development of malware
protection within its next-generation firewall, and ultimately aims to facilitate a
self-learning, interactive, autonomous two-way flow of information from both its
network security and endpoint security platforms.
Mark MurphyAC Splunk (SPLK US, N)

(1-415) 315-6736
Splunk inherently stands to benefit from an explosion of data, given that its business
model is leveraged to growth in machine data volumes. Splunk products including
User Behavior Analytics, IT Service Intelligence, and its application for AWS, and
other partner-developed SplunkBase solutions offer natively integrated ML. Splunk’s
track record for acquisitions in the space include SignalSense (cloud advanced data
collection and breach detection powered by ML) and select assets of Rocana
(analytics) – just within the past quarter.
Alex YaoAC Tencent (700 HK, OW)

(852) 2800-8535
Tencent recently unveiled its Artificial Intelligence strategy and related product lines
from four major aspects. In particular, the AI open platform will be the one key focus
Limited in 2018.
Establishing AI laboratories to focus on fundamental research

Tencent has started to invest in AI technologies since 2012 and established a number
of laboratories to focus on the fundamental research of a few key areas including
machine learning, computer vision, voice recognition and natural language
processing. So far Tencent has built three AI-focused laboratories including AI Lab,
Youtu Lab (primarily on computer vision) and WeChat AI team (on voice
recognition, natural language processing, machine learning, etc).
Multi-dimensional application of AI in Tencent’s products

From a use case perspective, Tencent’s AI technology has been integrated into a
number of key application use cases including gaming, social and content businesses.
Some killer products (such as Honor of Kings, QQ and Kuaibao) have already started
to leverage AI tech to enhance user experience. The use cases of AI technology not
only applies to Tencent’s core products i.e. social, gaming and content, but also
spreads to new initiatives e.g. finance and healthcare sectors.
 Game AI: the most well-known application of AI in gaming is Fine Art, the Go-
playing AI product of Tencent.
 Content AI: AI is widely adopted in content generation, search, recommendation
and distribution. For example, Dreamwriter, a machine writing platform of
Tencent, is able to report news in sports, finance, securities and technology
sectors, with average time to generate an article below 0.5 second. In addition,
QQ Music has also adopted AI modules to personalize content push for different
users.
102
(44-20) 7134-5420 27 November 2017
 Social AI, which is largely integrated into WeChat and QQ, killer social apps of
Tencent. For example, Fan Yi Jun, a simultaneous translation app, is based on
multiple technologies such as Neural Machine Translation (NMT), Optical
Character Recognition (OCR), etc.
 Finance AI. Typical examples in this area include Li Cai Tong, a wealth
management product of Tencent, adopts chatbot which is based on natural
language processing (NLP).
 Healthcare AI. Tencent has recently launched Mi Ying, a medical imaging AI
product which helps to identify potential disease at an early stage.
Figure 69: Use cases of Tencent AI technologies
Game AI
Healthcare Content
AI AI
Tencent
AI
Finance AI Social AI
Empowering all industries with AI capability: AIaaS (AI as a service)

Tencent Cloud: AI as a service. Tencent has deployed a few key AI technologies
on its cloud computing platform, which can be requested by enterprises. As of June
2017, Tencent Cloud has provided 25 AI services across computer visions, voice
recognition and NPL, to end users.
Meanwhile, Youtu Lab and WeChat AI have also opened up AI technologies

through respective Youtu and WeChat open platforms.
Building an “open-source” ecosystem

Tencent values the importance to establish an open-source platform. As of today,
Code, the open-source platform of Tenent, has opened up source codes of two major
AI platforms, including ANGEL, a flexible and powerful parameter server for large-
scale machine learning, and NCNN of Youtu Lab, a high-performance neural
network inference framework optimized for the mobile platform.
Mark MurphyAC Twilio (TWLO US, OW)

(1-415) 315-6736
mark.r.murphy@jpmorgan.com Twilio announced the GA (general availability) of its Speech Recognition
J.P. Morgan Securities LLC capabilities in Oct 2017, which enables users to convert speech to text and analyze
intent during any voice call. Twilio’s Automated Speech Recognition uses Google’s
Cloud Speech API, which supports various languages.
103
(44-20) 7134-5420 27 November 2017
Mark MurphyAC Ultimate Software (ULTI US, OW)

(1-415) 315-6736
In October 2017, Ultimate Software announced the launch of its AI technology
Xander, based on its acquisition of Kanjoya (Sept 2016). The technology can analyze
both structured data elements along with employee sentiment (via NLP) in real time
and deliver insight to help management make decisions. Xander is embedded within
the core UltiPro solution.
Mark MurphyAC Workday (WDAY US, OW)

(1-415) 315-6736
AI is an integral part of the Workday system and surfaces in terms of intelligent
recommendations to predictive analytics across HR as well as Finance. The move
toward incorporating AI started in 2015 with the acquisition of Identified and was
augmented more recently by the acquisition of Platfora. Workday uses AI for
predictive analytics across its solution from predicting employee turnover to
recommending learning modules on the HCM side to predicting customer collections
and using AI to create financial forecasts on the Financials Management side.
Not Covered Yitu (Private Company)

Yitu is an AI start-up focusing on computer vision. The company was founded by
Dr. Zhu Long from UCLA and Mr. Lin Chenxi from Ali Cloud. In 2017, Yitu closed
Round C financing of RMB3.8bn (US$580mn), led by Hillhouse Capital.
Yitu’s solution has been adopted as one of the verification methods for ATM by
Agricultural Bank of China and China Merchant Bank. Under the this new solution,
customers don't need to insert the debit card into the ATM for cash withdrawal, while
the ATM uses a camera to capture the information of their faces, then analyzes the
data and links to corresponding accounts. However, customers still have to input the
registered phone number for verification to meet the security requirements.
Yitu is a pioneer in the application of computer vision in healthcare. The company

has been working with some leading Chinese hospital to develop a diagnosis
assistant platform. Current solutions include Chest CT review, ultrasonic
diagnosis assistant and pediatrics diagnosis assistant.
104
(44-20) 7134-5420 27 November 2017
Appendix 3: AI acquisitions 2012-2017

Table 8: AI Acquisitions 2012-2017
Acquirer Company YOA Description
Ford Argo AI 2017 Automated driving
Ford Princeton Lightwave 2017 Lidar startup
Ford SAIPS 2017 Image and video processing algorithms, as well as deep learning tech for classifying input signals.
Facebook Ozlo 2017 AI chatbot startup with an advanced knowledge layer
Google Kaggle 2017 Platform that hosts data science and machine learning competitions. Large data scientist community.
Google Halli Labs 2017 Recommendation/personalization
Google AIMatter 2017 Image processing
Microsoft Maluuba 2017 Natural language processing
Apple Realface 2017 Cyber security and machine learning, specialising in facial recognition tech
Apple Lattice 2017 Turns dark data into structured data. Human level quality, high scale. Learning via distant supervision.
Amazon Harvest.ai 2017 Cyber security, uses machine learning to analyse user behaviour, identify threats and prevent attacks
Spotify Niland 2017 Machine learning startup specialising in music search and recommendations
Splunk SignalSense 2017 Cloud-based advanced data collection and breach detection solutions, leveraging machine learning
MoneyFarm Ernest 2017 Fintech chatbot
Jones Media Verve.ai 2017 Marketing Machine Learning
Element Data Behavior Matrix 2017 Emotional analytics platform
Amazon Body Labs 2017 3D Body Model
HubSpot Motion AI 2017 Marketing bot platform
Cloudera Fast Forward Labs 2017 AI research, specialises in consulting larger enterprises on emerging ML trends
M-files Apperento 2017 Natural language
Qualcomm Scyfer 2017 Builds machine learning solutions for companies in different verticals
Workday Pattern 2017 Pattern recognition, customer relationships
Lyft DataScore 2017 Specialises in customer acquisition and retention via a data driven approach
HubSpot Kemvi 2017 Startup applying AI and ML to help sales teams. E.g. best time to reach out to potential customers.
Amazon Graphiq 2017 Provides visualisations on complex data. Bought to help improve Alexa.
Amazon GameSparks 2017 "Backend-as-a-service" for game developers
Baidu KITT.AI 2017 Machine learning startup - Natural language processing technology
Baidu Raven Tech 2017 Develops AI-based voice assistant that supports plugins (enabling it to work with other web services)
Sophos Invincea 2017 Malware threat detection, network breach prevention, and pre-breach forensic intelligence. Leverages ML.
Sophos Barricade 2017 Behavioural-based analytics engine built around machine learning techniques
GE BITSTEW SYSTEMS 2017 Industrial internet application for machine intelligence - data integration, analysis & predictive automation
GE Wise.io 2017 Machine learning powered solution used to identify patterns and trends in data
Facebook Zurich Eye 2016 Computer vision
Facebook Masquerade 2016 Image filtering, with a focus on video
Amazon Angel.ai 2016 Acqui-hire. Builds chat bots
Apple Emotient 2016 Emotion-detection technology to improve understanding of customer sentiment
Apple Turi 2016 AI tech analyses facial expressions to detect emotions
Apple tuplejump 2016 Applies machine learning concepts and analytics to large complex data
eBay Expertmaker 2016 Applies machine learning to extract insights from large amounts of noisy data
eBay SalesPredict 2016 Predictive analytics used to predict customer buying behaviour and customer conversion
Google Moodstocks 2016 Visual Search Startup
Google Api.ai 2016 Provides tools to developers to help them build conversational bots
Intel Itseez 2016 Computer vision and pattern recognition
Intel Nervana 2016 Deep learning startup developing software and hardware
Intel Movidius 2016 Computer vision chipmaker, for use in drones and virtual reality products, among others.
Microsoft Genee 2016 AI powered scheduling service. Uses NLP and optimised decision-making algorithms.
NICE Nexidia 2016 Advanced customer analytics
Oracle Crosswise 2016 Provider of machine learning based cross-device data, supports marketers.
Oracle Palerra 2016 Data security, user behaviour analytics, with automated incident responses
Salesforce PredictionIO 2016 Open-source machine learning server
Salesforce MetaMind 2016 AI-based personalization and customer support solutions for companies
Samsung Viv 2016 AI Virtual Assistant
Twitter Magic Pony 2016 Machine learning and visual processing technology
Microsoft SwiftKey 2016 Creates keyboard apps for Android and iOS devices
Amazon Orbeus 2015 Image recognition, based on neural networks
AOL Sociocast 2015 Predictive analytics
Apple Perceptio 2015 Developing advanced AI for smartphones
Apple Vocal IQ 2015 Speech-processing for improved human-machine interaction
Facebook Wit.ai 2015 Speech recognition and voice interfaces
Google Timeful 2015 Smart scheduling app
Google Granata Decision Systems 2015 Prescriptive analytics initially focused on marketing resource management
105
(44-20) 7134-5420 27 November 2017
Table 9: (Cont.)
Acquirer Company YOA Description

IBM Explorys 2015 Predictive healthcare data analytics
IBM AlchemyAPI 2015 Natural language capabilities including keyword extraction and categorization
Intel Saffron 2015 Cognitive computing platform
Microsoft Equivio 2015 Machine learning powered compliance solutions
Salesforce Tempo AI 2015 Smart calendar
Twitter TellApart 2015 Predictive advertising for e-commerce and retail
Twitter Whetlab 2015 The company claims to have developed a technology to make machine learning better and faster
IBM COGNEA 2015 Cognitive computing and conversational artificial intelligence platform
Apple Faceshift 2015 Technology used in animation, capturing facial expressions in real-time
AOL Gravity 2014 Personalized advertisements
AOL Convertro 2014 Marketing intelligence
Google DeepMind 2014 Develops self-learning algorithms
Google Emu 2014 AI-based instant messaging
Google Jetpac 2014 Aggregates social media pictures and analyzes their locations to provide a travel guide
Google DM Dark Blue Labs 2014 Deep learning-based technology for understanding natural language
Google DM Vision Factory 2014 Object and text-recognition using deep learning
IBM Cogenea 2014 AI-based virtual assistant
Nokia Desti 2014 Travel planning application using AI and NLP to build knowledge on destinations
Nokia Medio Systems 2014 Location based predictive analytics
Twitter Madbits 2014 Deep-learning-based visual intelligence platform to identify contents of images
Apple Novauris 2014 Automatic speech recognition
Facebook JIBBIGO 2014 Speech recognition and machine translation startup
Google DNNResearch 2013 Use of deep learning and neural networks for image search
Microsoft Netbreeze 2013 Social-monitoring analytics
NICE Causata 2013 Provider of real-time Big Data analytics
Yahoo IQ Engines 2013 Image-recognition software
Yahoo LookFlow 2013 API for image recognition and categorization
Yahoo SkyPhrase 2013 Natural-language processing
Intel Indisys 2013 Natural-language processing
Facebook Face.com 2012 Facial recognition, with specialty in mobile
Source: Company reports and J.P. Morgan estimates.
Appendix 4: Other J.P. Morgan reports

covering the topic of AI
More of Moore: ASML reinstating Moore’s Law – a key AI enabler, by Sandeep
Deshpande.
Processor Event Takeaways: Multiple Architectures to Address Embedded, AI/Deep

Learning Applications, by Harlan Sur.
NVIDIA Corporation: Investor Day Takeaways, by Harlan Sur.
TSMC: Computing – Next growth engine or a bridge too far? by Gokul Hariharan.
Big Data and AI Strategies: Machine Learning and Alternative Data Approach to
Investing, by Marko Kolanovic.
European Capital Goods: Automation and IoT, by Andreas Willi
China Industrial Automation, by Karen Li.
106
(44-20) 7134-5420 27 November 2017
Disclosures
Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per
KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or
intervention.
Important Disclosures
 Gartner: All statements in this report attributable to Gartner represent J.P. Morgan's interpretation of data opinion or viewpoints
published as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publication
speaks as of its original publication date (and not as of the date of this report). The opinions expressed in Gartner publications are not
representations of fact, and are subject to change without notice.
Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for
compendium reports and all J.P. Morgan–covered companies by visiting https://www.jpmm.com/research/disclosures, calling 1-800-477-
0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgan’s Strategy, Technical, and Quantitative
Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-
0406 or e-mail research.disclosure.inquiries@jpmorgan.com.
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research
website, www.jpmorganmarkets.com.
Coverage Universe: Pollard, Stacy E: AVEVA Plc (AVV.L), Amadeus IT Group SA (AMA.MC), Atos (ATOS.PA), Capgemini
(CAPP.PA), Dassault Systèmes (DAST.PA), Hexagon (HEXAb.ST), Indra (IDR.MC), Micro Focus (MCRO.L), SAP (SAPG.DE),
SOFTWARE AG (SOWG.DE), Sage Group (SGE.L), Worldpay (WPG.L)
J.P. Morgan Equity Research Ratings Distribution, as of October 02, 2017

Overweight Neutral Underweight
(buy) (hold) (sell)
J.P. Morgan Global Equity Research Coverage 45% 45% 11%
IB clients* 52% 47% 33%
JPMS Equity Research Coverage 45% 49% 6%
IB clients* 68% 62% 53%
*Percentage of investment banking clients in each rating category.
For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table
above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered
companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst
or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com. For material information about the proprietary
models used, please see the Summary of Financials in company-specific research reports and the Company Tearsheets, which are
available to download on the company pages of our client website, http://www.jpmorganmarkets.com. This report also sets out within it
the material underlying assumptions used.
109
(44-20) 7134-5420 27 November 2017
Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based
upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.
Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US
affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS,
and may not be subject to FINRA Rule 2241 restrictions on communications with covered companies, public appearances, and trading
securities held by a research analyst account.
Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for
compendium reports and all J.P. Morgan–covered companies by visiting https://www.jpmm.com/research/disclosures, calling 1-800-477-
0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgan’s Strategy, Technical, and Quantitative
Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-
0406 or e-mail research.disclosure.inquiries@jpmorgan.com.
Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various
factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.
Other Disclosures
J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing
name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.
All research reports made available to clients are simultaneously available on our client website, J.P. Morgan Markets. Not all research content is
redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your sales
representative.
Options related research: If the information contained herein regards options related research, such information is available only to persons who have
received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options,
please contact your J.P. Morgan Representative or visit the OCC's website at https://www.theocc.com/components/docs/riskstoc.pdf
Legal Entities Disclosures

U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC. U.K.: JPMorgan Chase N.A., London
Branch, is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and to limited regulation by
the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from J.P. Morgan on
request. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England & Wales No. 2711006. Registered Office 25
Bank Street, London, E14 5JP. South Africa: J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities
Exchange and is regulated by the Financial Services Board. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated
by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong and/or J.P. Morgan Broking (Hong Kong) Limited (CE
number AAB027) is regulated by the Securities and Futures Commission in Hong Kong. Korea: This material is issued and distributed in Korea by or
through J.P. Morgan Securities (Far East) Limited, Seoul Branch, which is a member of the Korea Exchange(KRX) and is regulated by the Financial
Services Commission (FSC) and the Financial Supervisory Service (FSS). Australia: J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS
Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is
regulated by ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a
participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private
Limited (Corporate Identity Number - U67120MH1992FTC068724), having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina,
Santacruz - East, Mumbai – 400098, is registered with Securities and Exchange Board of India (SEBI) as a ‘Research Analyst’ having registration number
INH000001873. J.P. Morgan India Private Limited is also registered with SEBI as a member of the National Stock Exchange of India Limited (SEBI
Registration Number - INB 230675231/INF 230675231/INE 230675231), the Bombay Stock Exchange Limited (SEBI Registration Number - INB
010675237/INF 010675237) and as a Merchant Banker (SEBI Registration Number - MB/INM000002970). Telephone: 91-22-6157 3000, Facsimile: 91-
22-6157 3990 and Website: www.jpmipl.com. For non local research reports, this material is not distributed in India by J.P. Morgan India Private Limited.
Thailand: This material is issued and distributed in Thailand by JPMorgan Securities (Thailand) Ltd., which is a member of the Stock Exchange of
Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission and its registered address is 3rd Floor, 20 North Sathorn
Road, Silom, Bangrak, Bangkok 10500. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by
the OJK a.k.a. BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a
member of the Securities Clearing Corporation of the Philippines and the Securities Investor Protection Fund. It is regulated by the Securities and
Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil.
Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a member of the Mexican Stock Exchange and authorized to act as a
broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by or
through J.P. Morgan Securities Singapore Private Limited (JPMSS) [MCI (P) 202/03/2017 and Co. Reg. No.: 199405335R], which is a member of the
Singapore Exchange Securities Trading Limited and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) [MCI (P) 059/09/2017], both
of which are regulated by the Monetary Authority of Singapore. This material is issued and distributed in Singapore only to accredited investors, expert
investors and institutional investors, as defined in Section 4A of the Securities and Futures Act, Cap. 289 (SFA). This material is not intended to be issued
or distributed to any retail investors or any other investors that do not fall into the classes of “accredited investors,” “expert investors” or “institutional
investors,” as defined under Section 4A of the SFA. Recipients of this document are to contact JPMSS or JPMCB Singapore in respect of any matters
arising from, or in connection with, the document. Japan: JPMorgan Securities Japan Co., Ltd. and JPMorgan Chase Bank, N.A., Tokyo Branch are
regulated by the Financial Services Agency in Japan. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn
110
(44-20) 7134-5420 27 November 2017
Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities
Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities
and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom of
Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 35-07079
and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai:
JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai
International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.
Country and Region Specific Disclosures

U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc.
Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of
publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. Further
information about J.P. Morgan's conflict of interest policy and a description of the effective internal organisations and administrative arrangements set up
for the prevention and avoidance of conflicts of interest is set out at the following link https://www.jpmorgan.com/jpmpdf/1320742677360.pdf. This report
has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not
relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only
with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home
jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. This material does not take into
account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to any
third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has the
meaning given in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, Frankfurt
Branch which is regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end
satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and
Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from two months
prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative warrants, callable bull bear contracts and stock
options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: http://www.hkex.com.hk. Korea: This report
may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Limited, Seoul Branch. Singapore: As at the
date of this report, JPMSS is a designated market maker for certain structured warrants listed on the Singapore Exchange where the underlying securities
may be the securities discussed in this report. Arising from its role as designated market maker for such structured warrants, JPMSS may conduct hedging
activities in respect of such underlying securities and hold or have an interest in such underlying securities as a result. The updated list of structured
warrants for which JPMSS acts as designated market maker may be found on the website of the Singapore Exchange Limited: http://www.sgx.com. In
addition, JPMSS and/or its affiliates may also have an interest or holding in any of the securities discussed in this report – please see the Important
Disclosures section above. For securities where the holding is 1% or greater, the holding may be found in the Important Disclosures section above. For all
other securities mentioned in this report, JPMSS and/or its affiliates may have a holding of less than 1% in such securities and may trade them in ways
different from those discussed in this report. Employees of JPMSS and/or its affiliates not involved in the preparation of this report may have investments
in the securities (or derivatives of such securities) mentioned in this report and may trade them in ways different from those discussed in this report.
Taiwan: This material is issued and distributed in Taiwan by J.P. Morgan Securities (Taiwan) Limited. According to Paragraph 2, Article 7-1 of
Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers (as amended or supplemented) and/or other
applicable laws or regulations, please note that the recipient of this material is not permitted to engage in any activities in connection with the material
which may give rise to conflicts of interests, unless otherwise disclosed in the “Important Disclosures” in this material. India: For private circulation only,
not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to
persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money.
JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The
recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The
information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell
securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of
the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian
securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer
registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no
circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that
the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of
Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in
Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein,
and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the
DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / ouvidoria.jp.morgan@jpmorgan.com.
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co.
or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to
JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market
for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change
without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any
financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not
intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own
independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S.
affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or
announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P.
Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.
111
(44-20) 7134-5420 27 November 2017
"Other Disclosures" last revised November 11, 2017.

Copyright 2017 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan. #$J&098$#*P
112

JPMorgan An Investors Guide To Artificial Intelligencev 2

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

JPMorgan An Investors Guide To Artificial Intelligencev 2

Загружено:

Авторское право:

Доступные форматы

Completed 27 Nov 2017 01:09 PM GMT

Disseminated 27 Nov 2017 04:35 PM GMT

An Investors' Guide to Artificial

The AI Software Investment Framework

We see digital transformation as a prerequisite for AI adoption and believe that

Consultants and IT services vendors, which play a key role in designing,

Within our global technology/internet stock coverage, we believe the following

Data Analytics and BI Vendors..............................................................................43

Cognizant (CTSH US, OW) ..................................................................................81

In practice, AI is a group of technologies that help facilitate the discovery and

AI is different from traditional software programs in that it extracts knowledge from

2. Is the current hype around AI justifiable?

Nearly every major technology player is employing machine learning (ML)-driven

Why not now? Barriers to adoption

Having said this, we believe that growing enterprise digitization, increasing

4. What are some of the top AI use-cases (by industry)?

Table 1: Sample AI Use Cases Across Different Industry Verticals

5. What is the market size for AI?

IDC forecasts spending on AI-focused hardware, software, and services to reach

Figure 2: Global AI-focused spending* ($, bn)

Figure 3: AI market growth compared to other high-growth technology segments

200 Total cloud, 20%

Approximate 2016-2020 CAGR

Leaders in digital transformation will also be leaders in adoption of AI

7. What does AI bring to the enterprise?

8. Who are some key AI vendors?

 AI Platform-as-a-Service: Amazon, Microsoft, Google, Alibaba, Baidu, IBM

9. Jobs and social disruption?

susceptible to automation by currently available technologies) – and job

However, overall we believe AI is more likely to supplement humans and make

10. Will AI make humanity obsolete?

AI will be a disruptive force

Netflix recommender system: A billion dollars per year in value

AI in Journalism: 12x increase in earnings coverage2

AI enabling hundreds of millions of dollars in datacenter-related power savings

Figure 4: AI-driven reduction in power consumption in Google's datacenters

Artificial Intelligence | Machine Learning 44%

Digital tech | Internet of Things (IoT) 26%

FinTech solutions 12%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Discussion of AI is spreading like wildfire among enterprise software companies.

Layers of the AI ecosystem

 The Experience layer includes the interface, device or application - which is

Software Software Ecosystem -

Cloud, data centers, networks etc.

Data is the New Oil

Data is also superior to oil in several ways:

Digitize everything, refine your own oil

There are several data problems still facing AI applications today:

AI Brings Life to IoT

 AI as a component of the IoT System. In this structure, AI will be a feature or

Figure 7: AI + IoT Data Cycle

The Five Senses of AI

Table 2: Core AI components, sample application areas and vendors

1/2 - ‘Talk/listen’: Conversational Platforms on the rise

voice). Advances in speech recognition and Natural Language Processing (both

Figure 8: Framework of a typical conversational commerce application

Apart from B2C (Business to Consumer) applications, enterprises are boosting

Other notable enterprise chatbot / conversational AI platform vendors include

3 – ‘See’: Computer Vision enabling a host of next-gen

Source: Simbe Robotics.

Source: Hexagon Leica RealCity Urban Mapping Solution

verification), manufacturing (production line monitoring), and security (smart