By Matt Bell, Business Reporter
Investors are missing out on the $US1 trillion ($1.5 trillion) artificial intelligence boom, with a fund manager warning that traders still underestimate the sector despite strong sharemarket gains this year.
Martin Currie fund manager Zehrid Osmani said corporates were expected to pour a significant amount of capital into AI in the years ahead as they realised the critical role the emerging technology would have in making their businesses more competitive. AI became topical earlier this year with the emergence of ChatGPT and other natural language processing tools driven by AI technology that allow for human-like interactions.
This has helped to boost companies with AI exposure across global equity markets.
Computer chip giant Nvidia, which has significant exposure to AI, surged 220 per cent on the Nasdaq this year.
The company in March said AI presented a $US1 trillion market opportunity, compared to the $US300bn it forecast a year prior.
“What that shows you is how difficult it is to forecast the market, given that it’s a nascent opportunity. But it gives you an idea of how sizeable the market could be,” Mr Osmani said.
Mr Osmani said that there was anecdotal evidence now that corporates were asking engineers to “experiment with AI”.
“Nvidia is almost uniquely positioned to capture this demand through the competitive advantages it has gained over time, its R&D superiority, and its scale,” he said in an interview with Future Generation, a fund which focuses on investment and social returns.
“We think Nvidia is in a similar position to where ASML was 10 years ago. Its dominance and strong leadership in AI gives it a five to seven year lead on any competitor. So we think it remains well-positioned for that long-term structural growth both of semiconductors and of AI.”
Mr Osmani said that Nvidia’s first quarter results in May significantly beat expectations for both revenue and profits, and analysts increased their consensus full-year revenue estimates by 40 per cent and their earnings estimates by 100 per cent.
The fund manager said AI stocks such as Nvidia had rallied significantly in recent months, and this made it difficult to predict the size of the market and whether gains could be sustained in the short term.
“Nvidia has gone up 35 per cent on a 100 per cent upgrade in earnings. That actually tells you that the multiple has contracted. So, there will be a healthy debate on whether some of these AI-exposed names are overvalued and whether the theme is frothy,” Mr Osmani said.
“It does highlight the importance of valuation discipline which, for us, is always critical.
“As I said earlier, we don’t just invest in attractive themes; we invest in attractively priced, attractive themes.”
The approach for stocks was similar, with Mr Osmani urging investors to not just invest in stocks that were well-positioned and had attractive characteristics, but to always focus on attractive valuations.
