The reasons why we’re still bullish on investing in AI

Over the past two years, the revenues and the share price gains have been staggering for the Magnificent 7. Is it reasonable for investors to expect they’ll keep up this torrid pace? Although future growth can’t be predicted, we feel it’s still early days for investing in AI. If we look at Nvidia, one of the Magnificent 7, it has a significant microchip order backlog. This means Nvidia’s current valuation and growth expectations are well-supported. But this current demand is just the tip of the iceberg.

We’ve yet to see the demand from large enterprises and sovereign nations that want to build out their own AI infrastructure. So, the next wave of demand for AI may be bigger than what we’ve seen so far — and that means there’s continuous opportunity to invest in AI.

One of the biggest myths in tech is that gains are spread out among all the players. In the PC era, 80% of industry operating profits went to Intel and Microsoft. In the smartphone era, 80% of industry operating profits went to Apple. The lesson here is don’t bet against the leaders in the industry just because they’re big. Large companies usually have more sustainable competitive advantages. The big tend to get bigger. There may be a time when we’ll want to scale back positions in some of these names because the competitive advantages no longer seem as compelling. However, we do that when the facts change, not because the stock has climbed to great heights. In tech, we’re usually working at great heights.