On The Rock: Top Themes of the Week
On The Rock: Top Themes of the Week
Happy MDW!
Amidst ongoing negotiations surrounding the debt ceiling, AI technology is igniting the investment scene, bearing a striking resemblance to the late 90s tech bubble. Drawing parallels with historical data, we're witnessing an impressive influence of certain tech stocks driving value and momentum.
Delving further into the figures, seven stocks constitute 24.68% of the S&P 500, which is up by 10.29% so far this year. Note: Earlier this year, I did a deep dive into how to invest into 4 of the 7 listed below, including price targets from MARINA.
Platform Tech
Microsoft (up 37%)
Google (up 39%)
Amazon (up 41%)
Apple (up 35%)
Product Tech
Meta (up 114%)
Tesla (up 63%)
Semiconductors
Nvidia (up 162%)
The NASDAQ has also experienced a surge of 31.73% year-to-date, with those seven big names leading the way and contributing significantly.
Generative AI: Pre-Bubble
Back in the late 90s, during the dot com boom, Cisco, Dell, Microsoft and Intel were the big winners, all boasting robust revenues and supplying the infrastructure for dot com startups to thrive. The bubble was from late 1998 to March 2000. In 1999 alone, the NASDAQ grew 86%. Today and only 5 months through 2023, we are at 32%.
Companies thriving in the digital landscape with cloud, data centers, and other tech infrastructure are the new gold mines. They include Microsoft, Google, and Amazon. AI startups also need chip makers, such as Nvidia and Marvell. Further, there are only a few real estate investment trust like Prologis or Granite that can manage properties to support AI infrastructure for large enterprises. With their real revenue and market potential, they're the key players and potential winners behind data centers and cloud-based solutions that can stand up AI at scale.
In the 90s, Dot com startups were solely focused on gathering eyeballs without substantial revenues, leading to a speculative bubble. Fast forward to today, the situation is quite different. AI isn't a standalone business; rather, it serves as an integral tool within existing businesses, enhancing their operations and efficiency. For example:
Meta uses AI to detect and remove content that goes against our Community Standards before anyone reports it
Tesla uses an AI system that in real-time gathers visual data from eight cameras in the car, and produces a 3D output that identifies the presence of obstacles, their motion, lanes, roads and traffic lights, and models a task that helps cars make decisions
Adobe use AI in their creative cloud functionality to add endless possibilities to Photoshop - its worth checking out the video below
In contrast to the dot com companies of the late 90s, today's AI-empowered companies already have substantial data and revenues. AI is not just used by startups, but is also being deployed by established companies to drive efficiency and productivity.
Lastly, during the dot com bubble investors were inclined to buy stocks first and figure out the specifics later. Now, with generative AI, companies can provide a tangible outlook on savings and efficiency gains. For instance, IBM is promoting a 30%+ reduction in back office headcount due to AI implementation. While the potential is there, AI is not flawless and it will take several years before its true impact materializes (very similar to the dot com companies we use today). Despite this, assets on the stock market seem to be gaining an 'AI boost' in their valuations.