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A Majority of Ai, Software, and Semiconductor Stocks Are Crowded Right Now

March 1, 2024
minute read

Artificial intelligence stands out as one of the most transformative technologies in our era, a sentiment I've consistently echoed since 2022. In light of Nvidia's impressive earnings report last month, it is prudent to revisit the AI landscape, reassess our previous investment picks, and provide an updated analysis.

The realm of AI continues to present enticing investment opportunities. In an April 2023 column, I emphasized the potential of AI, projecting it to be a "multi-trillion dollar revolution." At that time, I highlighted prominent AI entities such as Nvidia, Alphabet, and potentially Microsoft. However, I cautioned against smaller-cap AI stocks like C3.ai, Sprinklr, BigBear.ai, and SoundHound.ai – a stance that remains unchanged.

My belief in the AI revolution has been unwavering since my initial investment in Nvidia and subsequent coverage for MarketWatch in 2016. While the desire to participate in this groundbreaking revolution persists, it now feels like a crowded trade. It is crucial to avoid the misconception that every tech company mentioning AI is a sound investment. Therefore, let's delve into the fundamental trends driving the AI revolution and identify optimal long-term investment candidates.

Foremost, it is evident that leading AI companies are fiercely competing to achieve artificial general intelligence (AGI). The frontrunners in this race are Meta Platforms and Tesla. These companies allocate substantial resources and assign their top talent to develop AGI for internal use, setting them apart from competitors.

A pivotal constraint for AI advancement lies in computing power. Meta and Tesla are directing their computing capabilities toward training proprietary AI models, distinguishing them from Microsoft, Amazon, Oracle, and even Alphabet, which leverage their compute resources for third-party AI training. While this strategy yields immediate revenue for these companies, we anticipate that AGI will emerge as the most valuable technology, causing cloud providers to regret not prioritizing resources for AGI exploration.

Expanding the scope, we identify other potential beneficiaries of the AI revolution. Autodesk, the creator of engineering software AutoCAD, stands out due to its extensive dataset comprising plans, drawings, blueprints, and designs. This dataset empowers a generative AI program, enhancing the efficiency and creativity of engineers and architects.

Cloudflare, with its network of edge servers, is another company in our portfolio. These servers are poised to secure and expedite AI inferencing globally more effectively than alternatives. Additionally, we hold positions in Intel and Taiwan Semiconductor Manufacturing, anticipating these companies to be the exclusive foundries capable of producing advanced chips essential for powering AI.

However, it's essential to acknowledge that the majority of AI, software, and semiconductor stocks currently represent a crowded trade. There may be opportunities to buy at more favorable prices in the coming year, as overpaying for stocks during inflated valuations could impede long-term investment success. Reflecting this, historical examples like the dot-com bubble demonstrate the extended duration it took for investors to realize returns after buying high-valuations stocks.

Our commitment remains steadfast in holding long-term winners such as Nvidia, Alphabet, Meta Platforms, Taiwan Semiconductor, and Tesla, given their pioneering roles in AI. We are optimistic about the potential of Autodesk, Cloudflare, and Intel, while staying vigilant for the emergence of the next Nvidia, Alphabet, Meta Platforms, or Tesla in the evolving landscape of artificial intelligence.

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Valentyna Semerenko
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Eric Ng
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John Liu
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Editorial Board
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Bryan Curtis
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Adan Harris
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Cathy Hills
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