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INVESTING IN THE AI GOLD RUSH

By Dries Dury,
Fundamental Equity Portfolio Manager DPAM

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Artificial Intelligence (AI) is set to revolutionise multiple industries and create immense value in the coming decade. With the rapid growth of AI-powered chatbots like ChatGPT and the increasing demand for computing power and semiconductor chips, companies across various sectors are vying for a slice of the AI pie. But which firms will come out on top?

Artificial Intelligence (AI) will be the most significant thing of this decade, every bit as important as the PC and the internet, says Bill Gates. He was right last time when he called the internet a tidal wave back in 1995. We think he might be right again.

Just five days after its launch at the end of November 2022, ChatGPT already hit 1 million users, achieving the fastest user base growth of all time. In January, ChatGPT reached 100 million users. The AI chatbot currently boasts an estimated 600 million monthly website visitors. There is little doubt that AI will enable large productivity gains for software developers, design engineers, creative designers, and even accountants.

As investors, it is key to identify who will capture the created value. We identify three potential winners. First, cloud infrastructure providers – such as Microsoft, Amazon, and Alphabet – are providing the necessary computing power and storage for companies transitioning their operations into the AI era. Microsoft has seen its AI revenues double every quarter for five consecutive quarters. Nvidia has just announced its “AI-as-a-service” offering, the Nvidia DGX cloud, which is a supercomputer accessible through your browser, in partnership with the cloud providers. The DGX cloud is expected to make AI more accessible to a wide range of enterprises.

Second, software companies with leading AI capabilities will benefit too. Big software companies could further consolidate their markets through their access to large data sets, a pre-requisite for training the best AI models. For instance, AI is a game changer for cybersecurity companies like Crowdstrike. The cloud and AI allow them to detect security breaches and take remedial action in real-time. Customers will likely gravitate towards the vendor with the biggest network (i.e., the best data set) and most advanced AI capabilities.

Thirdly, there can be no AI gold rush without the necessary picks and shovels, which brings us to the role of semiconductor companies. The AI wave increasingly requires computing power, and hence semiconductor chips and equipment. Training AI models is done on GPU chips, typically made by Nvidia, but AMD is a challenger. Determining the dominant market player in inference, the usage of the AI model, is less straightforward. However, AMD might be in a good spot thanks to innovation in their CPUs and their affinity with accelerators. AI will boost many companies along the semiconductor value chain, from design software companies (e.g., Synopys), outsourcing partners (e.g., TSMC), and semiconductor equipment providers (e.g., ASML, ASMI, BESI, etc.). In fact, Nvidia’s CEO, Jensen Huang, recently commented that AI processing has accelerated by a million times over the last decade. Through new chips, interconnects, and algorithms, Nvidia hopes to accelerate AI by another million times over the next ten years.

To be continued.

DISCLAIMER

Degroof Petercam Asset Management SA/NV l rue Guimard 18, 1040 Brussels, Belgium l RPM/RPR Brussels l TVA BE 0886 223 276 l

Marketing communication. This is not investment research. Investing incurs risks. Past performances do not guarantee future results.

© Degroof Petercam Asset Management SA/NV, 2022, all rights reserved. This document may not be distributed to retail investors and its use is exclusively restricted to professional investors. This document may not be reproduced, duplicated, disseminated, stored in an automated data file, disclosed, in whole or in part or distributed to other persons, in any form or by any means whatsoever, without the prior written consent of Degroof Petercam Asset Management (“DPAM”). Having access to this document does not transfer the proprietary rights whatsoever nor does it transfer title and ownership rights. The information in this document, the rights therein and legal protections with respect thereto remain exclusively with DPAM.

DPAM is the author of the present document. Although this document and its content were prepared with due care and are based on sources and/or third party data providers which DPAM deems reliable, they are provided ‘as is’ without any warranty of any kind, either express or implied. Neither DPAM nor it sources and third party data providers guarantee the correctness, the completeness, reliability, timeliness, availability, merchantability, or fitness for a particular purpose.

The provided information herein must be considered as having a general nature and does not, under any circumstances, intend to be tailored to your personal situation. Its content does not represent investment advice, nor does it constitute an offer, solicitation, recommendation or invitation to buy, sell, subscribe to or execute any other transaction with financial instruments including but not limited to shares, bonds and units in collective investment undertakings. This document is not aimed to investors from a jurisdiction where such an offer, solicitation, recommendation or invitation would be illegal.

Neither does this document constitute independent or objective investment research or financial analysis or other form of general recommendation on transaction in financial instruments as referred to under Article 2, 2°, 5 of the law of 25 October 2016 relating to the access to the provision of investment services and the status and supervision of portfolio management companies and investment advisors. The information herein should thus not be considered as independent or objective investment research.

Investing incurs risks. Past performances do not guarantee future results. All opinions and financial estimates in this document are a reflection of the situation at issuance and are subject to amendments without notice. Changed market circumstance may render the opinions and statements in this document incorrect.

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