2024 Q1 In Review - Integrity Wealth Advisors, Ventura & Ojai, California

UNDERSTANDING AI HYPE
A framework for investing in the AI opportunity set
perspectives. That said, a potentially useful investment framework that helps to
define near and long-term opportunities is set out below.
In 2023, we observed a significant
acceleration in the future value creation
from artificial intelligence, a trend that
was reflected in the share prices of
companies potentially set to benefit
from this multi-generational opportunity.
To navigate this landscape, it's crucial
to separate short-term hype from the
longer-term investment opportunity.
As AI continues to gain momentum,
developing an investment framework
to clarify AI opportunities over different
time horizons is essential. At present,
such a framework could include
computing, infrastructure, models and
applications, and beneficiaries. We firmly
believe that a research-based approach
is the key to identifying potential winners
and avoiding the losers in this everevolving
field.
COMPUTE:
Semiconductors are the brains behind AI,
which is compute-intensive at both the
training and inference stages. Although
semiconductors' growth remains cyclical,
the long-term growth trajectory for
this sector remains exponential, and
the market could almost double from
approximately US $500 billion in 2022 to
more than US $1 trillion by the end of the
decade. A significant amount of this will
likely be driven by increasing computing
demands from AI.
INFRASTRUCTURE:
If semiconductors are the fundamental
building blocks of AI, then companies
providing the infrastructure are the
'plumbing.' This includes public cloud
hyperscalers (such as Microsoft's Azure),
SOURCE: Capitol Group
which allow companies
to outsource computing
to the cloud through
huge data centers. The
advantage of this is
that customers have
Chip designers & providers Cloud hyperscalers
on-demand, pay-peruse
access to the most
Foundries
Datacentres
Manufacturing equipment
Networking
advanced and powerful
computing services
AI ‘stack’
and do not have to
run them on-premise.
Infrastructure also
includes companies
providing hardware
such as networking
components and switchgear, as well as allocating vast sums of capital to these
software that makes cloud computing models, we only expect a small number
• Compute
more efficient, given AI's high speed and will be able to compete sustainably
bandwidth requirement.
due to the scale requirements and
high barriers to entry − and therefore,
MODELS AND APPLICATIONS:
Much hype surrounding AI is
concentrated on companies 'creating'
AI models. These include names such
as OpenAI, which has garnered plenty of
interest given the success of ChatGPT.
Looking at model developers, we are
wary of potential commoditization
given a large and growing open-source
AI community advocating the 'AI for
Humanity' concept. Data possession
is likely to prove the most important
criteria for identifying ultimate winners
in this space, which naturally favors
owners of large, unique, proprietary
datasets, such as the tech incumbents.
Making a state-of-the-art generalpurpose
foundational model also takes
billions of dollars and talent from a
scarce pool. While many start-ups are
Compute Infrastructure Models Applications
Beneficiaries
Potentially limitless
Foundational models
Platforms
‘Big Data’ owners
Software
IT Services
Physical applications
as Uber or Airbnb would emerge and
become everyday services. With AI, our
current imagination of what applications
Semiconductors are the brains behind could AI, which be possible is compute-intensive is based on at both our the
training and inference stages. Although limited semiconductors understanding remain of growth this nascent cyclicals,
predict a small the handful long-term of massive growth trajectory for this technology. sector remains exponential and the
winners in the AI market model could area. almost Moving double to from approximately US $500billion in 2022 to more
applications, analysts than US $1trillion believe by software the end of the decade BENEFICIARIES:
4 . A significant amount of this is likely
companies' productizing' to be driven by AI increasing could benefit compute demands from AI.
meaningfully and fast; those winners
Finally, underneath this investment
framework sits the real-life and endindustry
beneficiaries of AI, which could
ultimately be limitless in scope and play
will have a direct monetization lever
by raising prices substantially. • Infrastructure The
opportunity for If developers semiconductors to provide are the fundamental out building over multiple blocks of generations. AI, then companies Again,
consumer or enterprise-grade providing the infrastructure software are the however, ‘plumbing’. it This important includes public to cloud remember AI
incorporating AI hyperscalers functionality (such is as clear: Microsoft’s Azure), is still which at an allow early companies stage of to outsource development:
consider how a compute company to the like cloud Microsoft through huge it datacentres. remains uncertain The advantage what of the this is technology
that
can add AI to its customers 365-suite, have including on-demand, pay-per-use could access look like to the in most 10 years, advanced how and long it
Outlook, Word, powerful Excel, and compute PowerPoint, services and do not might have take to run for it consumers premise. to build trust,
and charge a substantial Infrastructure recurring also includes companies and providing how interwoven hardware such in our as networking everyday
premium. We expect components this segment and switchgear, of the as well lives as software AI applications that makes cloud could computing become. We
value chain to evolve more efficient, profoundly given the over high the speed remain and bandwidth focused requirement on opportunities of AI. that
next decade, based on experience with may come out of AI and believe a deep
previous paradigms. In the early years research-based approach will become
of smartphones, for • example, Models and few applications could even more critical to identifying potential
have predicted that applications such winners and avoiding losers.
Much of the current hype surrounding AI is concentrated in companies ‘creating’
the AI models. These include names such as OpenAI, which has garnered plenty
of interest given the success of ChatGPT.
Looking at model developers, we are wary of potential commodisation given a
large and growing open-source AI community advocating the ‘AI for Humanity’
4
Data as at 31 December 2022. Source: ASML