Fund managers believe a potentially massive economic boom driven by AI is just getting started.Tuadesk/iStockPhoto / Getty Images
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Big tech isn’t just starting its engines in anticipation of the new artificial intelligence (AI) arms race.
Microsoft Corporation MSFT-Q, Nvidia Corp. NVDA-Q and the other large-cap technology companies – dubbed the Magnificent Seven – have already established sizable leads in the next great industrial revolution.
Yet, it’s a potentially massive economic boom that’s just getting started with plenty of room for those able to seize upon it, says Malcolm White, director and portfolio manager, global equity (technology) at BMO Global Asset Management in Toronto, who co-manages BMO Global Innovators Fund.
“It truly is like a race, and so you want to buy the fastest race car possible,” he says, noting big tech companies are best positioned to leverage the technology profitably.
“There is a big advantage to incumbency because they have the customers, massive amounts of data and great balance sheets.”
However, AI encompasses a large ecosystem of companies not among the Magnificent Seven. And it’s not just the tech sector, Mr. White says: “AI will have profound effects on everything from drug discovery to material science and alternative forms of energy.”
A recent PwC report forecasts AI could contribute US$15.7-trillion to the global economy by 2030.
Already, the investment funds industry has several offerings providing exposure to fast-growing companies entrenched in the AI ecosystem and the potential next big players. That includes BMO Global Innovators Fund, launched in 2022.
Other offerings include exchange-traded funds (ETFs) such as Robo Global Artificial Intelligence ETF THNQ-A, says Todd Rosenbluth, head of research at financial consulting firm VettaFi in New York.
That ETF’s holdings consist of “companies developing the technology and infrastructure enabling AI, such as computing, data and cloud services,” he says. It also holds companies applying AI in “various verticals, from business processes to e-commerce and health care.”
Among them is biotech company Ginkgo Bioworks Holdings Inc. DNA-N, which “recently announced a strategic partnership with Google Cloud to leverage generative AI for bioengineering,” Mr. Rosenbluth says.
The Canadian market has also seen ETF launches with AI exposure, including Evolve Artificial Intelligence Fund ARTI-T, which uses AI to find publicly traded companies that stand to benefit the most from the emerging technology.
“The problem we found with traditional AI-themed funds is that they often gave investors exposure similar to what they already have,” says Raj Lala, president and chief executive officer of Evolve Funds Group Inc. in Toronto.
“So, you would end up with the usual suspects – the Magnificent Seven – and miss the others with potential most people haven’t heard about.”
To that end, he notes the ETF has positions in companies such as C3.ai Inc. AI-N and UiPath Inc. PATH-N – both incorporating AI to power business solutions software. Another is CorVel Corp. CRVL-Q, which is integrating “AI into the improvement of health-care management,” he adds.
The Canadian equity market has potential, too, though with fewer and smaller companies, says Nick Waddell, founding editor of the Cantech Letter.
Still, Canada has firms such as Coveo Solutions Inc. CVO-T, which “owns a platform that injects intelligence and personalization into the digital experiences across [many] sectors,” he says, adding that it’s already generating more than $100-million in annual revenue.
Canada also has junior firms “to watch” such as NowVertical Group Inc. NOW-X, which helps companies leverage “mounds of data” using AI.
Despite these lower-profile companies’ potential, Magnificent Seven stocks including Alphabet Inc. GOOG-Q, Tesla Inc. TSLA-Q, Meta Platforms Inc. META-Q, Amazon.com Inc. AMZN-Q and Apple APPL-Q remain at the forefront, says Jeremy Yeung, who co-manages BMO Global Innovators Fund with Mr. White.
These companies have the most financial and technical wherewithal to build AI capacity quickly – a task requiring enormous numbers of costly graphics processing unit (GPU) chips that Nvidia mostly manufactures.
“When you look at past computing cycles from mainframes to PCs to mobile … one company has generated roughly 80 per cent of the economic growth,” Mr. Yeung says.
“In our view, Nvidia is going to generate a disproportionate amount of that with AI.”
Still, well-established publicly traded companies not among the Magnificent Seven are already benefiting and likely will be increasingly profitable as AI expands.
These include Micron Technology, Inc. MU-Q, which recently moved into the high bandwidth memory business required for AI data centres.
“The real secret sauce is they’re expanding their addressable market,” Mr. Yeung says, with AI as the biggest potential revenue generator.
Another is Advanced Micro Devices, Inc. (AMD) AMD-Q, a renowned computer processor chipmaker that just entered the market with a graphic processing unit (GPU) for AI data centres.
“Our estimates are probably north of US$5-billion” for AMD’s revenue this year, Mr. Yeung says, which pales in comparison to Nvidia’s consensus revenue forecast of more than US$69-billion.
Yet, Alphabet, Microsoft, Amazon and other large companies, while buying Nvidia GPUs in large quantities, don’t want the chipmaker to establish a monopoly similar to what Intel Corp. INTC-Q once had. “They’re actively courting multiple players to provide these GPUs,” Mr. White says.
Intel and Qualcomm Inc. QCOM-Q, which have struggled to gain traction in AI, are also developing semiconductors, including for non-cloud-based AI, representing the next generation of mobile phones, laptops and PCs.
Mr. White adds that the most measurable growth potential right now is the build-out of AI infrastructure – hence Nvidia’s incredible share price run. But the conditions are bound to change with growth potential in hardware and, more notably, software, as every industry realizes and reaps AI’s potential.
“AI is accelerating faster than any previous technology cycle we’ve seen, including the internet,” Mr. White says. “It’s like drinking out of a firehouse in terms of potential and opportunities.”
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