AI is the Best Investment Opportunity of our Lifetime: Video Interview
The I/O Fund was early to publishing stock analysis that stated AI would be an explosive opportunity. Beth went on record to say that Nvidia will surpass the valuation of Apple, and it has been her stance since November 2018 that AI will bring us a new set of FAANGs, one of which will be Nvidia. Since her callout, Nvidia shares have risen nearly 1,000%, with surging AI demand sending data center revenues to a projected $31 billion in FY24, an impressive 58.8% CAGR from 2018’s $1.93 billion.
In January, Beth was on Real Vision’s 3 Ideas and stated it would take World War 3 to get her to sell her Nvidia position. This was a strong statement at the time, yet Nvidia later led a historic 6-month performance for the Nasdaq with over 200% gains in 2023. Real Vision invited Beth Kindig back for a candid interview with Raoul Pal for a one-hour discussion on how to position for AI. Listen here for the full discussion on why AI is the best investment opportunity of our lifetime.
Watch the full-length 1 hour video on RealVision here.
AI’s Potential Impact on The Economy Will Be Unrivaled
The reason that AI will be the best investment opportunity of our lifetime is because of the impact it will have on GDP. As discussed in the 1-hour interview, the potential of AI to revolutionize nearly every sector, boost productivity, reduce costs, and significantly influence GDP is unparalleled. To be exact, AI is estimated to add up to $15.7 trillion to the global economy by 2030, and drive a market 5x the size of tech’s current global spend.
Later, McKinsey highlighted in June that AI’s total economic impact could be as high as $25 trillion combined, when spanning ML, advanced analytics, generative AI and AI-related worker productivity gains.
Beth points out that the contribution to GDP around the world will be “unlike any technology in modern times” and “infinitely higher than something like mobile.” AI is expected to more than double the GDP of developed countries in Europe, Asia, and the United States, and drive worker productivity as much as 35% higher across those regions.
It’s a trend that will be “4–5x larger than the FAANGs,” and one that will result in massive winners.
To watch the full 1-hour video, click here.
Beth explained to Raoul that “given the numbers we have today, because people like to think of AI as a hype, what I would encourage people to realize is that in 2010, mobile was not a hype, and we’re probably more like 2008 or 2009 right now, in terms of where we are with the vintage of AI and where it’s going to. So just keep all that in mind — if you believe that mobile would’ve been the right way to position, then AI certainly will be because it is so much more massive in terms of its contribution.”
Big Tech is Cornering AI, Edging out Startups
In the past, nearly all innovation came from the private markets and smaller teams. There is certainly a lot of innovation in AI still occurring in the private markets, yet AI will not be as democratized as mobile or the internet boom. This is due to the cost of training models, and Big Tech’s 10+ year head start on AI.
Google, Facebook, Amazon, and Microsoft have invested billions into AI development for years and can quickly and effortlessly integrate AI into their established business models. For example, Beth explored in June how AI could drive $100B in revenue for Microsoft by 2027, from OpenAI’s APIs running on Azure, to AI integrations and partnerships via Bing, and the rollout of Copilot, among other drivers.
Beth points out that AI “will be very enterprise driven,” with some consumer overlay, as opposed to mobile’s consumer-driven nature. In that context, “what is really ideal for a stock is if you take a consumer-facing company like Google, and they can inject their AI technology into the ads machine, or Google Search. So they don’t have to go out and try to get lots of consumers to adopt something new, consumers will continue to use Search, it’ll just be improved Search; advertisers will continue to use Google, it’ll just be improved ROI.”
To watch the full 1-hour video, click here.
Powering nearly every aspect of Big Tech’s AI ambitions is the semiconductor universe, and at the moment, that’s spearheaded by Nvidia’s AI GPUs. Beth has taken the stance for multiple years that “AI will bring us a new set of FAANGs, one of which will be Nvidia,” pointing out five years ago that “when artificial intelligence matures, you can expect data center revenue to be Nvidia’s top revenue segment.” Demand for Nvidia’s GPUs has soared through the roof, with data center revenues projected to triple from FY22’s levels to around $31B in FY24, as Nvidia is reportedly looking to triple shipments of its H100 GPUs from ~550,000 this year to 1.5 million to 2.0 million next year.
Nvidia’s H100 “has now opened up such an ecosystem of software development, that it’s a very special moment in time. People do call it the ‘iPhone moment’” for Nvidia, because of the significant increase in performance offered combined with the transformer engine on the chip. However, with the ‘iPhone moment’ comes an Android — watch the video below to find out who Beth thinks will take second place on AI acceleration. For more in-depth research from Beth, including 15-page deep dives on the 10 stock positions the I/O Fund owns, subscribe here.
To watch the full 1-hour video, click here.
Profiting From AI Takes a Thematic Approach
Beth does not believe in going “all-in” on a thematic approach. Rather, the I/O Fund is quite strict on what companies they add to the portfolio. Simply put, a great company should be disruptive and innovative, but should also be cash efficient and profitable. Criteria for the portfolio is discussed in detail every quarter on the I/O Fund team’s portfolio reviews.
To watch the full 1-hour video, click here.
Some of the key components for I/O Fund portfolio companies include ensuring companies remain on track with their product roadmap, ensuring that they are not overpromising and under-delivering, and not giving any leniency to the company’s financials in terms of weaknesses that may be present in margins or growth.
An example of a company that does not fit the I/O Fund’s portfolio criteria despite being branded as an AI stock is C3.ai (NASDAQ: AI) — shares rallied nearly 34% after topping estimates with its fiscal Q3 results in March, before rising another 34% to $44 at the end of May on product roadmap updates with its Generative AI product release on AWS’ Marketplace.
However, in just the span of 4 months, shares have fallen nearly 50% to $24, as fiscal Q1 results in September highlighted exactly why investors should offer zero leniency for weak financials. From FQ4 to FQ1, revenues remained flat, GAAP gross margins shrunk 10 percentage points to 56%, while GAAP RPO declined by $47M.
This is why thematic investing alone can result in losses — companies must do more than just state they are an AI company to have a place in the portfolio. Their financials must prove they are doing something disruptive, and that they have found true product-market fit.
AI Is Not A Trend To Miss
Per Beth’s interview with Raoul: “we all know that [with] the FAANGs, if you could have invested 10, 15 years ago in the FAANGs, you would have,” because of that multi-trillion-dollar potential of the mobile economy. In 2022, the mobile economy contributed around $5.2 trillion to global GDP, per GSMA, while AI is currently forecast to contribute three to five times that amount over the course of the next decade and beyond.
While many are quick to say that AI is merely just a ‘buzzword’, those who are in the know were able to get in front of 2023’s big move. AI is not a trend to miss, and as a leading portfolio in AI, the I/O Fund is preparing to capitalize on this once-in-a-lifetime trend.
If you own AI stocks, or are looking to own AI stocks, we encourage you to attend our weekly premium webinars, held every Thursday at 4:30 pm EST. Next week, we will discuss a new AI stock to our site that we think will be hot in 2024 — what our targets are, where we plan to buy, as well as where we plan to take gains. Learn more here.
Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.
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