'There's almost no industry that it won't impact ultimately': Investment manager on AI

Key Concepts

• General Purpose Technology (GPT): A technology that can be used in a wide variety of applications across different industries.
• Nvidia GPUs: Graphics Processing Units manufactured by Nvidia, which are crucial for powering AI advancements.
• TSMC: Taiwan Semiconductor Manufacturing Company, a leading manufacturer of advanced semiconductor chips.
• Hyperscalers: Large cloud computing providers like Amazon Web Services, Microsoft Azure, and Google Cloud.
• Valuation: The process of determining the current worth of an asset or company.
• Emerging Markets: Countries with developing economies that are experiencing rapid growth.
• Electric Vehicle (EV) Industry: The sector focused on the production and sale of electric-powered vehicles.
• CATL: Contemporary Amperex Technology Co. Limited, a major Chinese manufacturer of EV batteries.

AI as a General Purpose Technology and its Broad Impact

Mike Taylor emphasizes that Artificial Intelligence (AI) is a general purpose technology (GPT), meaning its impact will be profound and widespread across virtually every industry. He likens its potential implications to those of the invention of the printing press. While acknowledging the immediate and significant impact on coding, Taylor expresses excitement about the broader, long-term implications across various sectors.

Benefiting Industries and the Role of Speed

Taylor highlights healthcare as a key area where AI can drive significant advancements, particularly in understanding genomics to develop new drugs and therapies for patients. He points to the speed at which AI-driven developments can unfold as a remarkable differentiator.

The AI Hardware Revolution and Supply Constraints

The discussion delves into the hardware powering the AI revolution, specifically mentioning Nvidia's GPUs. Taylor notes that these chips are becoming increasingly powerful, offering more performance per unit of cost to the end customer, despite their high price. A significant constraint currently is the supply of these chips, with customers unable to obtain enough to meet demand. This indicates that the full implications of AI are still being explored as companies grapple with chip availability.

Bottlenecks in the AI Supply Chain and Hyperscaler Investment

Taylor identifies key bottlenecks in the AI supply chain:

• Nvidia's dominance in designing cutting-edge chips.
• TSMC's near-monopoly in efficiently manufacturing these advanced chips.

Despite these constraints, he observes that hyperscalers are investing heavily in AI deployment, indicating a strong commitment to integrating the technology. This capital deployment is expected to benefit both the hyperscalers and their supply chain partners in the long run.

Investment Perspective: Valuation and Growth Opportunity

When discussing investment, Taylor introduces a nuanced perspective on valuation. He explains that a share price can increase, yet the stock can become "cheaper" if the underlying growth opportunity expands or the company's ability to execute improves. This is the rationale behind their continued enthusiasm for companies like Nvidia, even with rising share prices. He refrains from offering a strong view on Palantir, stating it's not a stock he follows closely.

AI in Emerging Markets: Accessibility and Adoption

A significant point of discussion is the accessibility of AI in emerging markets. Taylor notes that companies in these regions can access and experiment with AI technology just as readily as those in developed nations. He provides a real-world example from South America where a company significantly reduced its sales staff by over 200 to a "tiny fraction" by implementing AI to handle sales processes. Remarkably, this led to an increase in customer satisfaction levels.

While acknowledging that most data center build-out is currently in the Western world, Taylor asserts that forward-thinking emerging market companies can absolutely access AI technology.

China's Role and the Electric Vehicle Industry

Taylor expresses a bullish outlook on China, particularly within the context of the electric vehicle (EV) industry. He anticipates the EV sector to be "meaningfully bigger" in five years, with Chinese businesses at its core. He specifically highlights CATL as a company he is a "big fan" of. CATL manufactures EV batteries and holds over a third of the market share. Taylor praises CATL for its superior technology, battery cell packaging capabilities, and manufacturing prowess compared to competitors.

Conclusion and Investment Strategy

Mike Taylor's core investment strategy, as applied to the Global Alpha fund at Bailey Gford, is to identify companies that will be "meaningfully bigger in 5 years" and the businesses that will "dominate those industries" globally. This involves looking beyond immediate trends and focusing on the long-term transformative potential of technologies like AI and the companies best positioned to capitalize on them.