Reporting from the crime scene – an Axon AI case study

As early believers and ‘AI maximalists’, we have long had high hopes for the technology; however, the speed and scale of initial adoption by companies across all sectors – and how quickly the benefits are feeding through to revenues – has exceeded even our expectations.

AI is no longer a future technology; a recent study found that only two years after OpenAI released ChatGPT, adoption of AI tools in the US is now 40%. AI technology has been adopted twice as quickly as the internet.

This has been a breakout year for AI investment, both from an infrastructure and an application perspective. For those yet to be convinced, who are unsure either about the technology’s transformative potential or its ability to deliver commercial returns after so much investment – the value of AI and the rationale for its accelerated buildout is continually being demonstrated by new data points which show this rapid corporate and consumer adoption.

Companies are generating meaningful revenues from the technology and delivering tangible value from its integration across their businesses. Importantly, AI is already contributing meaningfully to the earnings profiles of companies across many sectors – not just technology – and we are excited about the potential in 2025 for AI leaders to deliver truly differentiated earnings growth.

Forget defunding – de-stress the police

One of the most exciting benefits of AI that are we are already seeing is the realisation of productivity gains, most immediately and tangibly through greater output from an existing cost base. While industry commentators often cite the benefits of being freed from dull and repetitive tasks, specific examples of this opportunity have been less widely appreciated.

A good example is a recently released AI product called Draft One, developed by Axon in the US. The company, previously known as TASER International after its initial product line, produces equipment used by law enforcement agencies in particular. From Tasers, it diversified into cameras and now offers bodycams, dashcams and software.

Draft One is a multimodal AI tool, meaning it can interpret words, audio and video, that can automatically generate a police report from the footage captured by an officer’s bodycam. On returning to their station, Draft One will have already drafted the vast majority of an incident report, maybe even capturing information that would otherwise have been omitted. The officer is then simply required to complete and verify the report. From field trials in the US, the product has delivered an 82% reduction in the time taken to write reports.

This is game-changing. With US police officers spending an estimated 40% of their shifts writing reports, the potential for huge productivity improvements is obvious. Axon is charging just $85 a month for this tool, which we believe stands them in good stead to capture a significant portion of the >$12bn total addressable market for Draft One. In the three months after launch, the product had already generated a pipeline opportunity of over $100m.

Crucially, while there are clear cost and productivity benefits to the police department, perhaps a greater gain still could be a reduction in staff burnout and turnover. One of the leading reasons for resignations by police officers in the US is frustration with writing reports. This demonstrates why the AI opportunity is ultimately so exciting – it goes beyond simple cost savings or even productivity gains, and offers the ability to solve social problems in a way that technology has not yet been able to address.

Investing in AI

While the ultimate potential of AI is still emerging, examples such as Axon confirm our long-held view that the winners and losers will not be confined to the technology sector. The opportunity to invest in a diversified portfolio of winners across all sectors is a core proposition of the Polar Capital Artificial Intelligence Fund that we launched over seven years ago.

The aim was to bring our technology expertise to a global equity fund, understanding that AI disruption will bring technology-like dynamics to non-technology sectors. Identifying the winners and losers requires an active, dynamic approach that is built for a much faster pace of change than many sectors have seen before.

Opportunities will continue to exist in the technology sector, particularly for the ‘AI enablers’ that contribute to the development and infrastructure of AI. However, we believe that another opportunity – and the key differentiation of our Fund – lies in our focus on the largely non-technology ‘AI beneficiaries’ in the wider economy.

We believe these companies can benefit from faster revenue growth, higher margins or more resilient earnings outlooks – or, most likely, a combination of all three through their use of AI. Companies may be able to realise AI productivity gains in such a way that they can dramatically rearchitect their labour force and margin structures. They may unlock greater value from their proprietary data through AI or create AI-enabled products and revenue streams much like Axon has.

It is the breadth of the opportunity we are targeting that we believe sets us apart from other approaches that concentrate more on technology companies and the AI functionality itself. We are optimistic about the opportunity to build a portfolio of diversified winners into 2025 and beyond, and believe the ability to invest in the disruptive AI winners across the economy – as well as crucially avoiding the many companies that will be negatively impacted – will be key to delivering future investment returns.