Nvidia: The 3 types of companies in 'rapidly evolving' AI industry
Gabelli Funds portfolio manager John Belton comes on The Morning Brief to discuss the types of companies engaging the most in the "rapidly evolving" AI landscape and the new use cases that continue to emerge for artificial intelligence.
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It video reclaimed its title as the world's most valuable company on Tuesday from fellow Magnificent Seven Microsoft and shares of the chip maker Rose roughly 3% during the trading day, boosting the company's market cap to $3.45 trillion. Joining us now to discuss this milestone and re-achieving this milestone, what it means for the tech trade, we've got John Belton, who is the Gabelli funds portfolio manager here. John, good to have you here with us this morning. Thanks for taking the time. Just the significance of video once again being the most valuable publicly traded company here.
Yeah, I'm not sure I'd read too far into that. That's not, it's not really, uh, you know, my part of my framework, but I do think very clearly, um, the AI adoption cycle, AI usage, and on a related note, the AI investment cycle, um, clearly remains in a very strong phase. I think we are seeing serious inflection in adoption of, of major AI services and along with that comes the need for more AI infrastructure. So I think a company like Nvidia, a company like Microsoft, those are stocks that had lagged for most of the last, call it six months. They were probably due for a rebound given the fundamentals behind the AI industry remain so strong.
So if the AI industry remains strong, how do we think about who the potential tech winners and losers of that might be? Because before when tech has been disruptive, it's been to an industry like retail with e-commerce, for example. But now the AI tech could be disruptive to the tech companies who may not all be winners here. How are you thinking about that?
Right. I mean, I think there's very broadly three types of companies that are participating in this industry today. And this is a very rapidly evolving industry, but you have chip companies, semiconductor companies, server companies, the companies that are providing the computing infrastructure on one layer. Then you have companies that are coming together to provide the physical infrastructure, so the data centers that are housing the computing infrastructure. And then at the top, you have companies that are building applications and end user facing services that are making use of all the technology. So I think right now what's become very clear is the appetite for AI compute and AI infrastructure is extremely strong. And I think there's, that will continue for at least the next couple years. What's a little bit less clear is at the application layer, who are the winners and losers going to be? What are the new use cases going to be? And I think beyond the early use cases of chatbots and, and, you know, digital media and, you know, cloud infrastructure services, there's a few exciting potential newer use cases like agent software, autonomous driving, um, some use cases in healthcare, but that's going to take longer to play out.
Yeah. Since you bring up the application layer, it makes me think about Amazon and their approach with Bedrock to offering a significant amount of options to customers as opposed to really hyper betting on one specific model the way Microsoft has with OpenAI. How do you rate Amazon's strategy in the AI race?
Well, I think first and foremost, Amazon's doing a lot with AI to bolster their core e-commerce business. They're doing more with offering generative AI to their advertisers to create ads that can be shown on their platform. They're doing more with, um, using AI to place the right products in front of the right people. And then they're starting to use more AI in their fulfillment centers, um, introduce more robotics and, and do more with automation, which is helping their margins. They're also using it clearly, as you referenced, on the AWS side of their business as sort of an infrastructure provider to third parties. So I think they have a business that lends itself very well to AI naturally. In terms of building their own software applications, I think one of the beauties of being of the cloud infrastructure model is you can let specialists, third party specialists build those on your platform and participate in those economics as well. So that's more where I see things progressing for Amazon, specifically when it comes to building AI software applications.
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