Jeans and Shovels

Welcome to the Saturday edition and today we’ll be taking a deep dive into why now is the time to invest in AI and a simple principle to adopt.

(Disclaimer: this isn't formal investment advice; this is me talking about my thesis and what I'm doing with my portfolio and why. Nothing else!)

I'm bullish about AI. For me, there is almost nothing else out there that makes sense. I would classify myself as a techno-optomist, and as such can be prone to viewing tech such as AI through a rose tinted lens. I'm aware, however, that there are many hurdles to this technology getting widespread adoption, not least of which could be regulation (though that is not receiving the attention that it should right now)

Let me lay out my thinking. First, according to a recent report by PwC, AI tech is likely to add $15.7 TRILLION to the global economy by 2030 (Read the report here). For context, that is greater than the current economic output of China and India combined. I could almost stop at that, because that level of economic impact will drive massive valuations in the companies that generate that activity.

AI is the New Infrastructure 

We've entered an era where AI is the new electricity. Similar to how electricity transformed multiple industries in the 20th century, AI is now driving various facets of modern business. It's still very early days but if you just think about how quickly this tech is moving and evolving, it does not take a rocket scientist to know what is coming. A company's future competitiveness will likely hinge on its ability to integrate and leverage AI technology. Firms that excel in AI applications are likely to become the market leaders in their respective domains.

Companies with High AI Value Proposition 

Here are six companies, all well known, who are poised to benefit from massive growth over the coming years, for completely different reasons, but all with the same thread. If you look at these as marker stocks, you'll not go far wrong. Most of these stocks anchor my portfolio and are long term holds. I have no plans to sell any of these stocks ever, with current knowledge.

NVIDIA

Consider NVIDIA, a company that's much more than a graphics card manufacturer. NVIDIA is a market leader in GPU clusters, the backbone for supercomputers training large language models (LLMs) and other AI applications. Investing in NVIDIA isn't merely about buying into a hardware company but essentially taking a stake in the AI driven future.

Tesla

Tesla, on the other hand, is revolutionising the automotive industry with its full self driving (FSD) technology, fundamentally underpinned by AI algorithms. While Tesla cars have already carved out a unique space in the electric vehicle market, it's their AI driven autonomous FSD systems that hold the key to much of the company's future valuation. When you consider that Tesla is also one of the worlds most interesting enrgy companies, to mention nothing of it’s robotics platform, then I can't see a downside to holding this stock for the long run.

Microsoft 

Microsoft provides another compelling case. Once known primarily for its operating systems and office software, the tech giant is now an AI first company. Its various software applications, cloud computing services, and even its strategic investment in OpenAI are geared towards advancing AI technology.

Apple

Although they are not making waves much in AI compared to other behemoths, you know that when Apple enter a market, they dominate it. Not only that, they own their own architecture and chip designs so are less prone to supply side issues. Apple is cheap right now, all things considered. Word is that there will be a big AI commitment next year.

Other big players who are driven in the same way are AMAZON with its AWS cloud computing services running much of the LLM's, and ALPHABET, parent co of Google. Pretty much everything said about Microsoft holds true for both Amazon and Alphabet. These companies form the backbone of my thesis on AI - they are all about the infrastructure in one way or another. The old adage goes something like "in a gold rush, make sure you're selling jeans and shovels" holds true massively. These are jeans and shovels stocks. 

There are other stocks that undoubtedly, under this same thesis, make sense, particularly in the biosciences and pharma sectors, but I don't currently have many of them in my portfolio so won't talk about them. That will change soon though.

These views are my own and offered to provoke thought and discussion. They are not designed to be any form of invetment advice.

That’s all folks! See you on Wednesday for all the news and views on all things AI