– Andrew Macken

 

ChatGPT has wowed people with its remarkable ability to produce human-like work. It has highlighted to investors the remarkable potential for AI to revolutionise our lives. Investors are now naturally asking: where should I invest to capitalise on the AI boom?

Answers may not be obvious … but at least one is very obvious.

Some of the biggest winners from the AI boom – and certainly the surest – will be the already successful ‘hyperscalers’: Microsoft, Amazon and Alphabet (Google).

 

AI flywheel

While most people focus on what AI can do on the surface, few are aware of how these ‘hyperscalers’ are creating an underlying structure that ensures they will be the big winners from the AI revolution.

The hyperscalers are creating an ‘AI fly wheel’ – a virtuous cycle where they use their existing scale, technological advantages, huge R&D spending, and barriers-to-entry to both drive and dominate the surging demand for compute and storage that AI creates.

The hyperscalers are uniquely positioned to create an ‘AI flywheel’

Source: Montaka

How are they doing that?

 

Giving it away

We revealed the full workings of the flywheel in our whitepaper, ‘The Amazing Hyperscalers’. But one of the most powerful ways the hyperscalers are dominating is by ‘democratising’ AI.

The world’s hyperscalers are developing highly complex machine learning ‘ML’ models that solve problems: personalisation, fraud detection, cognitive search, intelligent document processing, media intelligence and customer intelligence.

They have a huge advantage in training these models because they have huge datasets from their core businesses that are near-impossible to recreate. They also have access to low-cost, large-scale internal compute, and access to the world’s best engineering talent.

But then the hyperscalers seemingly ‘give away’ these models for free.

Any customer can take an ML model ‘off the shelf’ and relatively easily and cheaply adapt and customise it to their own needs using their own internal datasets.

The quid pro quo?

The customer must use the hyperscaler’s compute and storage services.

It is the hyperscaler’s compute and storage services where they will make huge returns from the AI boom.

Imagine an alternative history where Ford owned all the world’s oil refineries in 1908. Might Ford have adopted a different business model? Might Ford have given away a Model T to every driver to spark explosive demand for gasoline?

This is somewhat analogous to what is taking place in global AI today.

 

Astonishing opportunity

ML is now a tool at the disposal of every software developer. In the future, no-code/ low-code interfaces (which are currently being rolled out by hyperscalers) will enable non-developer employees to harness the power of AI.

More than 750 million new applications are projected to be developed between 2023 and 2025 – far more than the total number of applications developed in the last 40 years.

ML is being incorporated into applications in just about every industry – not just the obvious technology industries. From banks, to insurers, to healthcare and pharmaceutical providers, to retailers and even asset managers, ML is being infused in a wide range of applications to improve customer value propositions as well as internal productivity.

The opportunity that lies ahead for today’s leading hyperscalers is nothing short of astonishing.

Why couldn’t every expense line-item on the income statement of every corporate, government and household be touched by AI in some way? All of these expense line items aggregate to nearly US$100 trillion per annum in global GDP, so the opportunity, through this lens, is staggeringly large.

 

The long-term winners

Today, we have met only the tip of the AI iceberg. And we believe this long-term opportunity is currently being drastically underappreciated by equity markets.

Montaka believes AI will drive much, much more demand for compute and storage than many are expecting today.

Furthermore, this growth is largely assured, the long-term winners are already known today with a high degree of certainty, and we believe the current stock prices of these businesses are failing to adequately reflect what Montaka’s sees on the horizon.

The conclusion is clear: to win from the AI revolution, own today’s hyperscalers, Amazon, Microsoft and Alphabet (Google).

 

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Note:

Montaka is invested in Microsoft, Alphabet (Google) and Amazon.