Last year taught us to worry about clever chatbots, this year we will find out if artificial intelligence is ready for much wider use. Financial Times reporters consider this and other trends affecting
businesses from defence contractors to energy majors, luxury and private equity.

Technology trend to watch

If the biggest tech story of 2023 was the race to build generative AI systems that can emulate humans in producing text and images, 2024 will bring the acid test of whether it is ready for widespread adoption.

Consumer internet companies such as Google are already embedding the new AI into their free services. But it is not clear yet whether consumers will also be willing to pay a premium for AI, and the early signs suggest that take-up in business will be slow.

Such systems often “hallucinate” — making up information — or produce erratic results, and many companies are only in the early stages of exploring how to use it to make their workers more productive.

After all the hope and hype, delays in adopting generative AI in 2024 could put a serious dent in the stock market’s euphoria over the technology.

Biggest risk

In the 13 years since Brussels opened its first investigation into allegations of anti-competitive behaviour by Google, the biggest tech companies have faced little in the way of antitrust sanctions beyond financial penalties they can comfortably afford. That could change in 2024, when a judge in Washington will issue a ruling in a landmark search case against Google, potentially opening the way to court-ordered changes to the company’s structure or the way it operates.

At the same time, the EU will take the first steps in enforcing its new Digital Markets Act, designed to break the grip of the “gatekeepers” that dominate crucial areas of digital activity. For consumers, this might lead to more choice in digital services. After a big run-up in technology stocks in 2023, it also presents a serious risk for investors.

Person to watch

After his shock sacking and reinstatement as chief executive of ChatGPT maker OpenAI, Sam Altman will be even more in the spotlight in 2024 than he was in 2023. The upheaval has brought home an uncomfortable tension at the heart of the industry, as OpenAI and its rivals race to develop a technology they admit could also cause serious harm.

Being back at the helm after an employee revolt looks like powerful vindication for Altman, and a green light to forge ahead. But a new and more experienced board will be looking for ways to enshrine the company’s safety-first mission, and Altman’s past behaviour is under a board-level investigation. His challenge will be to show a serious commitment to safety, without letting up on the AI race.

What would be the biggest surprise?

Apple’s status as the world’s most valuable company — a position it has held almost continuously for more than a decade — could come to an end in 2024. The iPhone maker has been slow to use generative AI to enhance its services, adding to pressure on it to say more about its plans at its annual developer event, which normally occurs in June. Meanwhile, its most important new gadget for years, the Vision Pro headset, is expected to sell in only small numbers when it hits the market this year.

By contrast Microsoft, which is worth 9 per cent less than Apple, is riding the wave of generative AI, thanks to its early tie-up with OpenAI. If this feeds through into higher software sales and a boost to its Azure cloud computing platform, Microsoft could vault ahead to become the tech industry’s market cap leader.

-Richard Waters in San Francisco

Private capital trend to watch

Private equity groups such as Blackstone have long pitched their funds as a way to beat public markets. But they are public companies themselves and mainstays in the portfolios of ordinary stockholders worldwide.

Blackstone in September became the first private equity group to be included in the S&P 500 index and its rivals Apollo Global and KKR are hoping they are not far behind. The acceptance of private equity groups on public markets has propelled their shares to record highs.

That brightening outlook is tempting others including CVC Capital, General Atlantic and L Catterton to follow suit. CVC is likely to be the first to take the plunge next year. If its listing is well received, it may spur a wave of IPOs.

Biggest risk

A good chunk of the money pouring into the industry is in the form of insurance premiums from savers seeking income in their retirement, rather than the traditional source of institutional investors looking to finance corporate buyouts.

Regulators have started to worry about this trend as have savvy private investors such as JC Flowers. According to the IMF, almost 10 per cent — US$850 billion (NZ$1.34 trillion) — of US life insurance assets were owned or managed by private equity firms by the end of 2021. The shift has meant a sharp rise in illiquid assets held by insurers and the fund has flagged the dangers of “contagion” to the wider financial sector and the real economy.

Scrutiny will only increase as top Washington officials like US senator Sherrod Brown conduct their own probes.

Person to watch

Harvey Schwartz, the former president of Goldman Sachs, took the reins of Carlyle Group in February facing what many dealmakers said was a brutally tough task.

Carlyle’s three billionaire co-founders helped to pioneer the industry, but a botched succession plan, middling performance and a tough fundraising environment has put the group on the defensive.

Since taking over, Schwartz has repaired ties with institutional investors and begun an operational revamp to improve profit margins and revive growth. Recently, the group has cut some dealmakers and reduced expenses.

It is the type of work Schwartz was known for in his decades at Goldman Sachs. Nonetheless, he will soon have to set out a comprehensive strategy for Carlyle and new financial targets.

What would be the biggest surprise?

Private equity executives insist the industry is entering a phase of consolidation, with smaller outfits absorbed by larger, diversified players.

Groups such as Apollo, Brookfield, CVC, TPG and General Atlantic have all recently agreed to acquisitions of private investment firms and BlackRock is on the hunt for mergers and acquisitions. But there may be another wave of dealmaking to come.

Insurance companies like Prudential, MetLife and Allianz may push deeper into the alternatives market by striking investment partnerships with large private capital groups, or by acquiring them outright.

-Antoine Gara in New York

Luxury trend to watch

Luxury lost some of its sparkle in 2023. The industry is still going strong compared to many others, thanks to its well-heeled clientele, but parts of it are slipping as a three-year Covid sales boom fades. The initial culprit was the US, as middle-class buyers tightened their belts.

And it looks like it will be more subdued in 2024 too, with analysts at Bain predicting growth will average between 4 and 6 per cent. The trend in recent years has been that the strongest brands, like Hermès, Louis Vuitton and Chanel, have become stronger while smaller rivals have struggled. That polarisation is only expected to increase in a tougher market.

At the same time, “experiential luxury”, such as travel and hospitality, is expected to grow at a faster rate than luxury goods such as handbags and watches.

Biggest risk

China’s strict Covid lockdowns hit luxury sales and its recovery has been less straightforward than many had hoped. But it remains the market that is expected to power growth. Consultancy Bain expects Chinese buyers will account for about 40 per cent of the €540b-€580b global market for personal luxury goods by 2030.

If the country’s property bubble bursts or there is a further escalation of tension with the west, that would be a blow to the industry. The US may be luxury’s biggest market, but China is its growth engine.

Person to watch

Bernard Arnault, the chief executive of LVMH, is the most influential figure in the industry for a reason. Aside from nipping at the heels of Tesla’s Elon Musk for the status of world’s wealthiest individual, LVMH is luxury’s biggest company by a country mile and is regarded as a bellwether and a gold standard for the sector.

Arnault is a meticulous operator, keeping a close grip on the running of his empire, which spans some 75 brands from hotels to high fashion and jewellery. He has pushed the boundaries of what was thought possible for luxury, expanding Louis Vuitton to a €20b in revenue brand, something that had never been done before in an industry that has historically traded on exclusivity.

The company has cash to spend. With valuations under pressure as the sector readjusts, could 2024 be the year Arnault does his next big deal?

What would be the biggest surprise?

Rumours have circulated for years about LVMH or Kering trying to buy rival Swiss luxury group Richemont. Aside from Richemont’s other jewellery and watch brands such as Van Cleef & Arpels, the big prize would be Cartier, which Morgan Stanley estimates has sales of about €10b a year.

Johann Rupert, Richemont’s 73-year-old chair and controlling shareholder, has long said he is not a seller. But with the years passing and no successor chosen, it might be just a matter of time.

-Adrienne Klasa in Paris

Defence trend to watch

Low-cost drones have become a central feature on the battlefield in Ukraine, underlining the increasing role of new autonomous technologies in modern warfare.

This shift has profound implications for government defence departments which have to evolve their often slow-moving procurement strategies from a reliance on hardware such as tanks and ships to investments in more agile systems such as robotics and sensors controlled by AI.

For the industry, the large contractors that have dominated for decades must try to keep up with the rapid advances made by smaller, technology-led, rivals. The coming year and beyond will test their ability to innovate as governments increasingly look beyond traditional suppliers.

Biggest risk

The conflict in Ukraine and tension in east Asia have boosted defence spending around the world: total global military spending increased by 3.7 per cent in real terms in 2022 to reach a new high of $2,240b, according to the Stockholm International Peace Research Institute. Military expenditure in Europe had its steepest year-on-year increase in at least 30 years.

The pledges of higher defence budgets have boosted the share prices of companies and driven order backlogs to new records but there is a risk that not all of the funding will come through as governments grapple with other budget priorities.

In Europe, in particular, the Ukraine conflict has galvanised governments to make good on previous promises to boost the region’s status as a global, cohesive military power.

Despite some progress, many of the same challenges remain: fragmented policymaking; national rivalries that undermine joint procurement initiatives; and procurement decisions in favour of US equipment. The industry has yet to convince governments that defence is not just an insurance policy at times of war.

Person to watch

If Donald Trump wins the US presidential election in November, it could “completely upset the entire course that we have seen over the last two years,” said Byron Callan of the research group Capital Alpha Partners.

Trump has said that if he was re-elected, the US would rethink “Nato’s purpose and Nato’s mission”. Pressure might also increase on Europe to increase its funding for weapons for Ukraine if the US pulls back support.

What would be the biggest surprise?

Despite the increasing role of technology-led companies in the industry, it has so far remained relatively undisrupted. There is, as yet, no disrupter along the lines of Elon Musk’s Tesla in carmaking.

With many of the backers of Silicon Valley start-ups agitating for a bigger role on the Pentagon’s defence procurement programmes this could change if one of them wins a big contract.

-Sylvia Pfeifer in London

Energy trend to watch

The Opec+ oil cartel has spent the year cutting production in an increasingly fraught attempt to boost prices. Having cut output by 2m barrels a day in October 2022, equivalent to 2 per cent of global consumption, Saudi Arabia has led a succession of cuts in 2023. In total, the group will now produce almost 6m b/d less than it could in the first quarter of 2024.

At the same time, surging US production has meant that the market share of Opec+ has fallen to just 51 per cent, according to the International Energy Agency, the lowest since the expanded cartel was set up in 2016. And despite the cuts, oil prices are still hovering below US$80 a barrel, compared with nearly US$100 in September. Given that production from non-Opec+ members is expected to keep rising next year, it begs the question of how long Saudi Arabia and its allies can keep giving away market share.

Biggest risk

Inflation and high interest rates have driven up costs for renewable energy projects in 2023, hampering efforts to shift the global energy system away from fossil fuels.

If rates remain high, as some economists believe, it could be another disappointing year for clean energy projects just as the world needs the energy transition to gain pace. The offshore wind industry is facing particularly acute challenges. Sector-leader Ørsted was one of several companies to take big writedowns on its portfolio in 2023.

Person to watch

BP’s chief executive: whoever that will be. Murray Auchincloss, the interim boss, took the top job in September after Bernard Looney resigned over his failure to disclose past relationships to the board. A search for a permanent replacement is taking longer than many expected.

Auchincloss, who previously served as chief financial officer, is well-liked by investors and seen by current and former staff as the frontrunner internally. BP is also considering hiring a chief executive from outside the company for the first time.

Ultimately, whether it picks an internal or external candidate could determine whether the 114-year-old energy major sticks with the green transformation plan spearheaded by Looney.

What would be the biggest surprise?

The US oil industry has spent the past three months consolidating, with ExxonMobil, Chevron and Occidental all launching multibillion-dollar megadeals for smaller rivals. The acquisition spree has led to speculation over European mergers and specifically whether Shell could buy BP.

A tie-up of the UK’s two biggest energy companies is something Shell has periodically reviewed for years. At £166b, Shell’s market capitalisation is double that of BP. Shell chief executive Wael Sawan has said big acquisitions were not a priority between now and 2025, so any move next year would be a big surprise.

-Tom Wilson

© Financial Times