Investment Q&A

We think the fears are a bit overblown at this stage but regardless, the sentiment has shifted for the time being and markets will need to work through the fears on AI in the short-term. The industry, for now, is certainly concentrated across a few companies but this is not new or perhaps unusual. Ironically, the concerns over AI demand are also likely helping to keep any fears of overbuilding in check in the short-term. Nearly all companies have reported earnings results in the last 30 days and given up-to-date outlooks on their investment intentions and views on demand for the next quarter or year, and almost all companies have noted that demand is strong. The bigest issues we came across were more along supply and logistics issues (i.e. they cant get inputs fast enough to meet demand). 

There seems to be two main concerns at this stage. One is just the returns/use case for AI which pops up from time to time. We think this question has been largely answered at this point in that AI is being used throughout peoples lives in work and personal and considering how new this technology is, we think it will only proliferate more. Whether the 'return' component is a company making direct revenues off of it or if it is more cost savings, we think the returns are there to justify it and the mega-cap companies will need to remain invested in AI to avoid getting disrupted by other companies. 

The other issue is around financing for the build out which so far has not been problematic nor does it look like it is a big issue so far. However, OpenAI's recent interviews and discussions around financing has not been comforting for markets and were likely missteps in terms of communication. It is no secret that the sums of money being cited for AI buildout are quite high but it also does not all need to come 'today' and as the mega-caps sort of seed the landscape, there will likely be more companies that step up to invest in the space as well. So, we think the concentration issues will dilute over time. The nature of it all as well is that there needs to be big up front investing to get things up and running, so in a lot of cases these companies have not even had a chance to scale up their operations and show the potential profits (which is also feeding into the fears). In our view, the AI cycle is also quite young at this stage and it feels like markets are viewing as though we are in the 7th inning where we are probably closer to the 3rd inning or earlier.

In terms of companies impacted, it will be the usual suspects between mega-caps and direct AI beneficieries and industrial capital equipment companies.