How we're thinking through transformational growth opportunities, along with the risk of the over-hyped companies and soon-to-be obsoleted business models
Transcript
| Chris Davis: | AI is a subject on every investor's mind. Advisors are getting bummed with questions. What does AI mean? And we think the best way to set the framework was Bill Gates' observation that new technologies are almost always overestimated in the short term and underestimated in the long term. And in that period of overestimation and hype, people are piling in and flailing around trying to make predictions about the winners. | |
| But really, it's something that will play out over a very, very long period of time. And it's important not to try to pick the winners today, but try to understand the long-term implications of the rollout of this incredibly disruptive and powerful technology as it rolls out not just through the technology sector, but through the whole economy. So that's what we spend our time thinking about in a way that is similar to the internet. You can imagine the early days of the telephone, we like to say that, you know, you need to think about defense as well as offense. | ||
| What do you own that is in big trouble, an old business model that's disrupted? And they're saying we like to say is, you know, when the iPhone was invented, flashlight manufacturers were not nervous, right? So you need to think about both sides. This needs to be something that permeates your whole investment process. And you can, you can bet it sure does here. | ||
| So I'm going to have Danton spend some time taking you through some of the specifics of how we are thinking about the rollout of AI in the economy, but also the implications for both technology industries and some of the other industries that we're looking at as beneficiaries. | ||
| Danton Goei: | You're absolutely right, Chris. I mean, we're big believers that this AI trend is going to have a huge impact. It's going to be at least as impactful as the advent of the semiconductor or of the internet itself. So it is going to have a big impact, but it also can lead to short-term hype. You know, as a well-respected investor noticed, I mean, back if you look back at 2000, who were the top, you know, large cap companies at that time during the internet bubble? | |
| It was Cisco, AOL, and Yahoo. And you know, of course, we know what happened to them and AOL and Yahoo, you know, a no longer relevant, and their stocks are way down. And then even Cisco, which the investors at the time were right that it would be a big hardware and networking opportunity, and then the leader still today, but when they ascribed a 200 PE multiple on it, that led to an underperformance over time, and the stock still hasn't recovered to its 2000 highs. And so there is a lot of risk out there, and so we want to really focus on where the opportunities and where we can avoid risk. When we think about the industries that are going to be impacted, I mean, there are many. And in fact, a lot of issues that are going to be helped and also hurt. | ||
| So if you think about financial services, there's a lot of costs that can be taken out. There's a lot of processes that are manually intensive today that are going to be replaced by AI. That's for sure. or that's going to be very beneficial for the companies. Now, of course, there's going to be job losses, many in the white collar space. So those are things that we need to focus on. Another area that another sector that can be heavily impacted is healthcare. | ||
| You know, when you think about diagnosing patients, AI is perfect for that, right? If you're in a small town in West Virginia, you don't have the resources to really diagnose some rare diseases, but if you have the best AI model available, that can do a great job and save lives really, so that is going to be a huge impact. Drug discovery is going to be heavily impacted and improved with AI. Now there are going to be also, if you're a radiologist, I think long term, that is a risk for you, if you're a medical code, a programmer, that could also be a risk. And so there's many, many industries. Technology, of course, is going to be very impacted. Education even is going to be impacted. And you also think about utilities. Well, utilities doesn't really seem like a business that will be impacted by AI. But then you think about the power needs that are required to run these data centers. And suddenly you think that well, the zero to one percent growth in utility, in electricity usage over the last several decades, that's no longer the case. Right? Now you're seeing 3-4% growth in electricity demand, and that has had huge implications for power generation, distribution, and utility companies. |
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