Latest Deals Raising Questions About an AI Bubble

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00:00I'm really interested in the fact that you've got Holdings NVIDIA, you're clearly a supporter of the AI theory,

00:07but are we looking at a bubble when you get these sorts of deals?

00:10Well, you've got to look at it two ways. One, in terms of timing of the deals.

00:14If it is a bubble, it's potentially an NPD issue.

00:17Are we going to get all this revenue in 10 years' time or 5 years' time?

00:21And that's what the market is trying to figure out right now.

00:24People try to compare this to the dot-com bubble, etc., but there's a difference here.

00:27A lot of the companies who are buying a lot of these products are supported by strong cash flows, free cash flows,

00:32which means that there is potential for these revenues to come through,

00:36especially if AI demand take-up goes along the lines of what we've seen in the last two, three years.

00:41I mean, none more so have the financial flex than NVIDIA.

00:44And it's interesting that NVIDIA, when signing that 10 gigawatt compute capacity with OpenAI,

00:51did give $100 billion in terms of support buying equity.

00:54Is those sort of circular financing deals something that gives you pause,

00:59or do you think that that's part of what the deal needs to be?

01:01No, that does give us pause.

01:03You do look at that and say, hang on, this is not clear blue sky.

01:06There are some things we need to think of.

01:08So that's why the next two, three years are going to be really important.

01:11Because what we'd want to see is the return on the capex that companies like Alphabet, Meta,

01:17a lot of these big companies are spending to show up.

01:20If it shows up, then what you realize is that this $100 billion is not circular, but just the Kickstarter.

01:26So that's what we want to try and see.

01:28I mean, you own Meta, and Meta has shown up in terms of generative AI being folded into the advertising model,

01:33being able to be built in and bring real revenue to bear right here, right now.

01:36But how long are you going to have to wait for Alphabet's bet to really pay off?

01:40For, we already see in NVIDIA, but do you think more broadly,

01:43OpenAI eventually really showing that productivity is going to gain them in terms of revenue?

01:47So from an Alphabet, from the software company's perspective,

01:50we do think that the next 12 months are going to be really important.

01:53What you do need to see is not just the return on capex going through,

01:58but the revenue growth coming through to support that.

02:01In 27, 28, that we are going to see a continued acceleration or at least stability in revenue growth.

02:07Without that, it's very hard to see how the market gets really comfortable

02:10with the amount of capex that's being spent right now.

02:13I mean, you just said it does give you pause,

02:14and there isn't just blue sky when it comes to NVIDIA.

02:16So have you just been trimming some of the exposure?

02:19Has now been the time to just stay holding pat

02:22and not adding to some of the overall portfolio exposure to some of these names?

02:26So we tend to think of in terms of longer term,

02:28so what does this look like in the next five years?

02:30When we look at it from that perspective,

02:32the valuation doesn't look extreme at this point in time.

02:35It does give us a pause in terms of,

02:37look, what else do we need to factor in to keep buying more?

02:41But at the same time, it doesn't give us any fear that,

02:43hey, this is an imminent bubble as you asked at the start.

02:45Well, on Friday, there was a lot of pause between US and China,

02:49and particularly access to some of these companies to rare earths

02:52that ultimately are very dependent on China.

02:54How much have you been baking that into a supply chain headache

02:56for some of the companies you own?

02:58So that's, again, it's a timing issue.

02:59So there's two parts.

03:00The first part is, is this become a prolonged issue, geopolitical issue?

03:04Then there's a lot of other things that you need to think of,

03:06not just the semiconductor companies,

03:08but all the FMCG companies,

03:10all the other companies that sell into emerging markets

03:12and all global trades.

03:13So let's set that aside,

03:15that this is a solvable problem

03:16that gets solved at some point in the time.

03:18Then it's a timing issue.

03:21Already what the companies are telling us is

03:23there's a real supply issue,

03:26that they don't have enough computing power.

03:28So that means that people who make these chips

03:31benefit from any of these supply chain issues,

03:33because to them, they get pricing power in the short term.

03:36But in the longer term, this gets solved,

03:37so it's a temporary issue.

03:39So if anything, these sort of market dips

03:42is an opportunity that you look at saying,

03:43what are the good quality companies

03:45that you do know have pricing power

03:46that you want to buy into right now?

03:48And what are they,

03:48if it's not the obvious AI winners and darlings

03:51we've already seen hit a trillion dollars?

03:53No, no, they still remain, as I said,

03:55they still remain attractive,

03:56but there's a broader spectrum out there.

03:58If you look at companies like Delta Electronics,

03:59which provides electronics and cooling equipment

04:01to data centers, you look at Schneider,

04:04you look at SAP,

04:05which is going to benefit from the fact that

04:07AI gets taken up by more and more enterprises.

04:09So there's a bigger ecosystem

04:10than just the semiconductor companies

04:12or just the cloud companies.

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