Editor's note: Today in DailyWealth, we're happy to introduce our colleague Andrew McGuirk. Before joining Stansberry Research in 2020, Andrew earned an advanced degree in finance and mathematics from Wake Forest University. He is now an analyst for the tech-focused Stansberry Innovations Report. We hope you enjoy this piece, and we look forward to featuring more of his work on the latest trends in tech and cryptocurrencies.
The Biggest AI Winners Won't Be What You Expect By Andrew McGuirk, analyst, Stansberry Innovations Report
Mark Zuckerberg is currently spending tens of billions of dollars to make OpenAI obsolete... After the launch of ChatGPT in November 2022, popular tech giants – also known as "hyperscalers" – have spurred an investing frenzy in generative AI. Each of these hyperscalers is working tirelessly to train and launch its own proprietary large language models ("LLMs"). And they're looking to monetize them. Microsoft (MSFT) and Alphabet (GOOGL) are packaging up their LLMs to sell as subscription services. But all this investment might be for nothing... Zuckerberg has decided to take an entirely different route than his competitors. It could mean the easy gains in AI have already been made – at least in the "classic" AI giants that soared in the initial boom. But that doesn't mean you can't find opportunities in AI. As we'll see, it pays to "think outside the box" to find an edge in the market...
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Meta Platforms (META) recently spent about $10 billion on advanced graphics processing units ("GPUs") from chipmaker Nvidia (NVDA). (GPUs are necessary to train and run complex AI models.) However, instead of renting out access to its highly trained LLMs, Meta is determined to open-source its most advanced models... Put simply, Zuckerberg says Meta will publish its code freely. Anybody with a computer can copy and run their own tailored models using Meta's foundations. LLMs could potentially become a commoditized product as a result... meaning their functions and capabilities become so similar that each model is hardly different from any other. This would make it hard for any of the AI leaders to retain a competitive advantage. Switching costs for users would become extremely low. These companies would then essentially be selling identical products. If any business with competent engineers can spin up a proprietary model using Meta's code for little to no cost... that could make life difficult for companies like Microsoft and Alphabet that are building out their own LLMs. Worse, these stocks have a lot further to fall now. Like many new technological innovations, AI isn't immune to reaching euphoric levels – or even bubble territory – in the markets. Many of the big players in AI chipmaking have soared to unsustainable heights... For example, Super Micro Computer (SMCI), an AI hardware manufacturer, climbed more than 1,100% in less than a year, only to lose about 40% from its peak (and more than 20% on April 19 alone). Despite earning $732 million in net income and negative free cash flow of $169 million in 2023, the company is valued at around $47 billion... more than 65 times earnings. Similarly, Nvidia trades at around 64 times earnings. Its stock dropped more than 10% in a single day this month, losing nearly $212 billion in value. These stocks have made huge gains for investors... But they can also lose more than 10% to 20% of their value in a single day. On top of that, if the AI playing field is leveled, they could have a long way to fall. That doesn't mean we should avoid AI investments altogether, though. There are still plenty of overlooked sectors within the AI supply chain... We just need to think outside the box. One area that's ripe for investment is the data-center business... AI will need major data-center upgrades. Many companies are building an edge in this space and still trade with a margin of safety. For instance, Nvidia's H100 chips are only a small fraction of data-center hardware. This business is a vast realm of servers, power equipment, storage systems to house data, cooling systems, and more. We're seeing the strength of the AI hardware business firsthand in our Stansberry Innovations Report portfolio. One AI server bet we recommended in recent months is up 76% as I write... while a chipmaker we recommended last year is up 63%. Investors could also look at the energy companies that power data centers... the mining companies that provide the raw materials... or even data-center real estate investment trusts that own and lease out data-center space. Thinking outside the box can be more profitable in the long run than sticking to the flashiest winners of a trend. Many industries stand to benefit from the AI boom... So I urge you to broaden your scope before jumping into an obvious choice. Good investing, Andrew McGuirk
Editor's note: Andrew works alongside John Engel and our in-house crypto expert Eric Wade in the Stansberry Innovations Report newsletter. They identify innovative market trends – before they become well known to the mainstream. Just last week, the team recommended a pioneer in data-center cooling to their subscribers... a stock that's poised to soar as AI infrastructure demand ramps up. If you want to learn more about innovative trends in technology and AI, click here. Further Reading The AI boom is just getting started. Many big tech companies are already betting big on this innovation. And as more money goes toward the AI revolution, investors will see all kinds of opportunities within this trend... Learn more here. The semiconductor sector staged a double-digit rally in just two months earlier this year. That's one of the biggest run-ups we've seen. And according to history, this rare setup means the gains are likely to continue... Read more here. |
Market Notes HIGHS AND LOWS NEW HIGHS OF NOTE LAST WEEK Goldman Sachs (GS)... financial giant
American Express (AXP)... financial giant
Barclays (BCS)... financial services
Synchrony Financial (SYF)... financial services
M&T Bank (MTB)... regional bank
Charles Schwab (SCHW)... brokerage services
Interactive Brokers (IBKR)... online brokerage
Chipotle Mexican Grill (CMG)... tacos and burritos
Texas Roadhouse (TXRH)... restaurants
Sprouts Farmers Market (SFM)... grocery stores
Church & Dwight (CHD)... household products
General Electric (GE)... manufacturing
Ryder System (R)... logistics
Pioneer Natural Resources (PXD)... oil and gas
Agnico Eagle Mines (AEM)... gold NEW LOWS OF NOTE LAST WEEK Boeing (BA)... "offense" contractor
Pfizer (PFE)... pharmaceuticals
Bristol-Myers Squibb (BMY)... pharmaceuticals
Gilead Sciences (GILD)... biotechnology
Sirius XM (SIRI)... satellite radio
Delta Air Lines (DAL)... airline
Whirlpool (WHR)... appliances
Sasol (SSL)... chemicals
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