Story of the month
As the first-quarter 2023 earnings season draws to a close, it’s clear that it could be summed up in the phrase: “Content Generative AI frenzy”.
ODDO BHF AM would therefore like to devote this Fund Insight to a few examples of companies and sectors that have provided uswith the first clues to this tectonic movement.
NVIDIA: SHARE PRICE UP 24% IN A SINGLE DAY!
In their March issue of the Fund Insight, ODDO BHF AM explained their conviction that designers of chips dedicated to artificial intelligence would be the first winners of the AI revolution. In particular, ODDO BHF AM pointed to Nvidia as the company poised to capture the lion’s share of this market.
ODDO BHF AM were right on target, and Nvidia’s share price proved it onMay 25. That day, Nvidia shares soared by 24%! Nvidia was already a very large company: its market capitalization had already reached $750 billion the previous day. With this impressive rise, Nvidia created a stock market value in just a few hours almost equivalent to twice that of the Airbus group, despite having just 11,000 employees and having its chips manufactured by subcontractors in Taiwan.
This sudden and impressive rise was based on the financial forecasts unveiled by this world leader in computer graphics processors (the famous “GPUs”). Nvidia said it expected second-quarter sales of around 11 billion USD. The huge gap (almost 50%) between this figure and market expectations (analysts were expecting just 7.2 billion dollars), demonstrated the extent to which investors were far too clearly underestimating the pace of growth in AI. After all, it is AI that is driving Nvidia’s development: its customers, in particular the major cloud players (e.g. Microsoft, Google, Oracle and Amazon), are clearly flocking to Nvidia’s high-end chips, such as the H100 (which packs 80 billion transistors into a single element), despite its unit price of 40,000 US dollars. The performance of Nvidia’s GPUs is among the best on the market. They are indispensable for meeting the exponential growth in computing power requirements generated by “Generative AI”. At the same time, Nvidia’s other corporate customers are also stepping up investment in their own data centers, purchasing GPUs and other compute-accelerating components fromNvidia.
TO AVOID GIVING IN TO IRRATIONAL BLINDNESS, A MORE NUANCED VISION OF GENERATIVE AI
In view of the excitement triggered by Nvidia’s announcements, ODDO BHF AM’d like to mention in this Fund Insight an example of a lesser-known company. Although positively exposed to Generative AI, this company is not relying on it as the sole factor for its future success.
Video game publisher Take-Two: On the one hand its visionary CEO Strauss Zelnick, is certainly enthusiastic about Generative AI, highlighting the extra efficiency it will bring to his core business. On the other hand, he points out that blockbuster games will continue to be created by human geniuses (in other words, the sum of long data series and high computing capacities will not be able to emulate human genius, even in the case of LLMs). This position is fairly anti-consensus in the media industry (a group like Disney has a vision at the opposite end of the spectrum, investing heavily in AI for the creation of its blockbusters, for example).
SOFTWARE: THE NEXT BIG BENEFICIARY OF GENERATIVE AI, IN THEIR OPINION…
Finally, ODDO BHF AM would like to reiterate one of their convictions: they are resolutely optimistic about the stock market value that should be created in the software sector thanks to Generative AI. They have already dealt extensively with Microsoft in their previous Fund Insights. There’s no need to revisit it here. On the other hand, several other publishers have made announcements in recent weeks which show that:
- Generative AI now performs automation tasks considered impossible even a year ago
- Generative AI develops reasoning that engineers have not been able to anticipate and cannot fully explain today
ODDO BHF AM will comment here on just a few examples of software companies:
- ServiceNow showed very well at its “Capital Markets Day” event last May how it was going to use Generative AI to increase the value delivered to its customers in its core business: automating internal business processes. Its strategic partnership with Nvidia was promoted with force and conviction by both Bill Mc Dermott (CEO of ServiceNow) and Jensen Huang (CEO of Nvidia). This added value will be reflected in higher pricing for SaaS subscriptions sold by ServiceNow to its customers.
- SAP and Atlassian, for their part, have chosen the path of partnerships with Open AI (and thus indirectly Microsoft) to implement Generative AI modules in their respective core businesses. Here too, the added value is clearly perceptible.
- Elastic aims to differentiate itself through its “Elastic Search Relevance Engine” and its database vectorization approach, which will enable corporate customers to create their own LLM (Large Language Model, similar to ChatGPT), but based on their own data (not necessarily from the Internet).
In this Fund Insight, they hope to have provided a glimpse of the range of segments and companies involved in AI (in general) and Generative AI (in particular). Combined with the real risk of greatly underestimating the potential of AI (as Nvidia has so vividly demonstrated), this diversity of situations gives us hope of discovering many investment opportunities in the future.
Discover de full Fund Insight d’ODDO BHF AM here.
