Podcast: A Deep Dive on AI and the Investment Cycle - June 26, 2024
Are we entering a new Industrial Revolution? In today’s episode, special guest Jeremy Yeung, and your host, Mckenzie Box, dive into the booming world of artificial intelligence — touching on the innovative companies at the forefront of AI development, like Nvidia. They also share insights into the BMO Global Equity Team’s unique investment process and the importance of maintaining an informational advantage.
McKenzie Box is Vice President of Product Management and Strategy at BMO Global Asset Management. She is joined on the podcast by Jeremy Yeung, a Director and Portfolio Manager on the Global Equity Team at BMO Asset Management Inc. The episode was recorded live on Wednesday, June 26, 2024.
BMO Global Innovators Fund
My name is Jeremy Young and I am the Portfolio Manager for the BMO Global Innovators Fund. I started my career about 20 years ago. I’ve had the experience of going through cycles from the dot-com crash and the great financial crisis. Since that time, we’ve seen the birth of the internet, the sharing economy, and emergence of smartphones. Our Global Equity team is headed by Jeff Elliott and there are currently 20 investment professionals on the team. The team is segmented as sector specialists, such as Global Financial or Industrials — my team covers Global Technology. I’ve spent a lot of my time travelling globally which has given me a perspective to compare different geographies and understand emerging markets, such as China. Within a global context, we look at product cycles, trying to understand where spending on research and development will produce market and category expansions. Amazon, for example, started out as an online book company that pivoted to Amazon Web Services. These are some of the lenses that we use from an investment perspective.
Artificial Intelligence (AI)
We have compared the AI investment cycle to previous industrial revolutions, such as the invention of electricity or combustion engines. With combustion engines, we created trains, planes, and automobiles that gave the world a lot of mobility. With the AI revolution, we see a path where intelligence is commoditized. Giving intelligence to cars, for example, can make them autonomous where they can keep their lanes and do simple functions. I was in Arizona last year and a fully autonomous car took me from the airport to my hotel — and it was incredible. Here are the four points in our investment cycle framework. First you have the infrastructure cycle, then the algorithm layer. Following that is the application phase, and then the final stage with monetization. Currently we believe we are in the infrastructure stage. So, from a stock market perspective, the majority of our investments are in the semiconductor space. We are constantly travelling to companies within the global supply chains to understand where the puck is going.
Nvidia and Blackwell
Nvidia is the number one holding of the BMO Global Innovators Fund. You have a visionary CEO, Jensen Huang. We are moving into a world with accelerated computing and you need high-performance graphics processing units (GPUs) to train large language models. They also bought a company called Mellanox, which provides technology to network GPUs. When you combine this holistic approach, Nvidia is a platform company solving for AI. Blackwell is their latest product. It has 72 GPUs mounted in a rack that’s about seven feet high, three feet wide. Microsoft, Amazon, and Google are going to be more dependent on Blackwell for their AI models, which can deliver 30% performance than Hopper, their first product family.
Due Diligence
If you don’t travel to the region to see companies in their home court, you don’t have an informational advantage. In striving to generate idiosyncratic returns on our investments, we try to attend key tech conferences to gain that informational advantage. I have travelled to Hong Kong, China, Korea, Japan, and Taiwan over the course of two weeks, meeting over 50 companies within their supply chains. I attended the Computex conference and the Nvidia AI summit. This is where companies like Microsoft, Intel, AMD, and Dell launch their new personal computers (PCs) and products, and we get an opportunity to see and feel them. Over the course of 20 years, I have never seen so much enthusiasm and interest around Nvidia and their CEO, and their new products. Given this popularity, it occurred to me that Nvidia could not have generated the incremental $100 billion over the last several quarters without the full support of the Asian supply chain.
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