Artificial intelligence is transforming global business: Why investors must look beyond the technology sector

The performance of Nvidia, the undisputed winner in commercialising AI, bears testimony to the huge surge in interest and the excitement around artificial intelligence (AI).  It took Nvidia almost twenty-five years after its IPO as a producer of graphic cards for computer games to reach a valuation of USD 1 trillion, a level it broke in June 2023. Just nine months in March this year, its valuation doubled to USD 2 trillion and early this month it broke through USD 3 trillion.  Nvidia is now vying with Apple and Microsoft to be the most valuable publicly listed company in the US.  It has also been powering gains in the S&P 500.  The index has returned 12.5% year-to-date but take away Nvidia’s share price performance and its gains would fall by a third to 7.9%.

We have held Nvidia in the J. Stern & Co. World Stars Global Equity Fund since early 2022. We remain very positive about the company and its prospects for value generation.

Applications and use cases have run far beyond available computing capacity and there is an extraordinary demand for computing capacity due to the rapid and growing adoption of AI by all industries.  Over the past year, we have written several investment insights on AI – about the rise and significance of ChatGPT, why Nvidia is best placed to capitalise on the demand for AI, and why we continue to hold Nvidia despite its strong share price performance. 

Nvidia has a strong competitive position and an attractive business model with strong free cash flow generation.  It is at the forefront of addressing the demand for computing capacity and we expect it to continue to deliver strong growth in revenues, profits and cash flows.  Nvidia is only one of many of the companies we hold that will benefit from AI and we believe that investors must look beyond the technology sector. 

AI: more than a technology play

Today, AI is most associated with the technology sector.  Howe

ver, we believe it will create great investment opportunities across many industries. The digital advertising companies, Meta and Alphabet, have incorporated AI into their products and are seeing immediate returns. Both companies are experiencing a reacceleration in growth as AI enables them to recommend better content, increase user engagement, serve more appropriate ads and improve conversion and monetization. Ultimately, AI makes it easier for advertisers to reach their target audience and means more value accrues to the platforms that implement it.

AI is increasingly on the agenda of most companies and has been a focus in recent earnings calls across a wide range of industries.

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