According to the renowned US political magazine 'Foreign Affairs', we are in the 'Age of Great Power Competition'. When it comes to the key technology markets of artificial intelligence, 5G and blockchain, the USA on the one hand and China on the other are the measure of all things. Two key figures are of great importance to the financial industry: the number of valuable patents and investments in start-ups. Measured in absolute figures, the two major powers lead the patent rankings in the most important sectors such as image processing, speech processing, robotics and planning, followed at some distance by Japan, South Korea and finally Germany.

The picture is similar when it comes to venture capital investments in young AI start-ups. The well-known tech research company CB Insights calculated a record investment volume of 26.8 billion dollars in artificial intelligence start-ups in 2019. In addition to the major American and Asian venture capital funds, the main drivers of investment are the dominant American tech companies Alphabet, Apple, Amazon, Facebook and Microsoft as well as the top Chinese players Alibaba, Tencent and Baidu. An initial investment is usually followed by follow-up investments of up to hundreds of millions of dollars or the start-ups are even acquired outright for billions, as in the case of big data company Looker, which was bought by Google for 2.6 billion dollars in June 2019.

AI follows its own 'Moore's Law'

When it comes to artificial intelligence, everyone first thinks of the well-known GAFA companies (Google, Apple, Facebook, Amazon). In 2015, prominent Silicon Valley entrepreneurs and investors founded the non-commercial research company OpenAI to provide a counterbalance and ensure neutral, generally available algorithms and resources. The founders and investors include Tesla and SpaceX boss Elon Musk and Linked-In founder Reid Hoffman. Alongside Google and Facebook, OpenAI is now regarded as an important and independent voice on AI developments. OpenAI recently presented figures showing that artificial intelligence is developing at an almost exponential rate. According to these figures, computing power is doubling every 3.4 months, which is 7 times faster than Moore 's Law, developed by Intel founder Moore. The figures presented by OpenAI show that developments in artificial intelligence can be divided into two phases: Between 1950 and 2010, AI computing power doubled every two years in line with Moore's Law; in the modern era since 2012, development has accelerated dramatically. The researchers attribute this to two things: special processors trimmed for AI algorithms and cloud computing.

Since 2012, the processing speed of AI processes has increased by a factor of 300,000. The classic Moore's Law would only have led to a sevenfold increase. This has recently manifested itself in the victories of the Google computer AlphaGo. Years ago, it would have been unthinkable that a computer would leave the board as the winner of the complex strategy game of Go. In the meantime, the 18-time Go world champion Lee Dol has even announced his retirement and capitulated to the superior computing power of artificial computers. Nvida boss Huang declared Moore's Law dead at his CES presentation in early 2019. Nvida, with its special graphics chips (GPUs), is benefiting twice over from this trend on the processor side and through the acquisition of the Israeli cloud network specialist Mellanox, which was completed this year. Google is even igniting the next stage with its breakthroughs in quantum computing.

To understand why the USA and China are far ahead of the rest of the world when it comes to artificial intelligence, it is helpful to take a closer look at the respective clusters. Kai-Fu Lee, computer scientist, investor and author of the bestseller "AI Super-Powers China, Silicon Valley and the New World Order", believes that the USA still has the advantage in terms of creativity and innovative strength with regard to algorithms, software and special chips, whereas the Chinese can score points with their immense wealth of data thanks to their relaxed data protection legislation and the far-reaching digitalization of economic and financial transactions (China has more than 800 million mobile internet users). In the medium term, Lee assumes that large amounts of available data, which are commonplace in China, will be more important than the algorithms required to process it. This would give China a decisive competitive advantage over the western world in the long term.

The USA and China clusters

The development of the Solactive Artificial Intelligence Performance Index since its launch in September 2017. It includes leading technology and application companies that develop and use AI technology, including Apple, Nvidia, Intel, Blackrock, Microsoft, Alibaba, ASML, Alphabet, Qualcomm and SAP.

© Thomas Rappold

The American business magazine Fortune currently considers the following four American companies to be AI innovation leaders: the research company OpenAI described above, which has repeatedly caused a stir with its groundbreaking algorithms and founded a commercial unit in 2019, in which Microsoft has invested USD 1 billion, the two Google companies DeepMind (well-known product: AlphaGo) and Google Brain (well-known product: Tensorflow, leading AI programming language) and finally the AI research department of Facebook (well-known product: AI programming language Pytorch). In addition, the two Californian universities Stanford and Berkley.

The Chinese government has named a national AI team of leading IT companies in line with its importance. Each of the companies has a clear key role to play in the race for technological world market leadership: Google competitor Baidu is tackling the issue of autonomous driving, gaming and messaging giant Tencent is focusing on image processing for medical diagnostics, Huawei on software and infrastructure and Alibaba is leading the smart city initiative.

Germany must act

Germany must focus on its own strengths and not try to copy American or Chinese models. Siemens CEO Joe Kaeser put it in a nutshell at the World Economic Summit: "Germany is managing to define global standards in three key areas: Mobility, energy and the environment, and digital industry." A bold, concerted Agenda 2030 from politics, companies, business, the media and trade unions is needed for these aspirations to become reality. After all, Germany ranks first among the world's most innovative nations in the Bloomberg Innovation Index, ahead of countries such as South Korea, Singapore and Switzerland. Germany has always been at the forefront of basic research, but the results have often been prematurely discarded, as was the case with the invention of the computer, rocket technology or the MP3 compression algorithm. A technology future fund with a volume in the double-digit billions, which should be fed by leading German companies, financial service providers, private investors and state development banks, would therefore be a matter of urgency.

At the same time, the state would have to create attractive tax incentives that would provide the initial impetus for technology transfer. According to recent surveys by the Bundesbank, Germans have assets of 6.3 trillion euros, around 40% of which are languishing uselessly in current accounts at zero or negative interest rates. The Solactive Artificial Intelligence Performance Index shows that AI can be a lucrative investment for both private and corporate investors. Since its launch in September 2017, it has gained more than 50%.

About the author: Thomas Rappold is a financial/stock market expert, author (Silicon Valley Investing) and founder of numerous internet start-ups.