The AI hype: Moats, gorillas, and market mania – Sean Peche

*This content is supplied by Sean Peche, Portfolio Manager at Ranmore Fund Management Ltd

First appeared on LinkedIn

Apple’s recent announcement of integrating ChatGPT 4.0 into Siri has caused a stir, boosting its market cap by $325bn. While this integration promises features like personalised bedtime stories and custom menu ideas, some investors are sceptical. The AI hype, exemplified by Nvidia’s rapid rise in market cap, may be peaking. Despite Nvidia’s current dominance, history shows that tech giants can fall. The excitement surrounding AI may drive short-term market movements, but long-term sustainability requires solid financial fundamentals. Investors should be cautious of overvaluing based on hype, as numbers ultimately drive lasting market success. Sean Peche investigates.

Did you see Apple’s announcement about integrating ChatGPT 4.0 into SIRI?

Yes, I hear people are excited; the share price has increased 12% since then.

Well, that’s one way of putting it.

The other is that Apple’s market cap has risen by $325bn in a few days, more than the combined market cap of food giants Nestle ($280bn) + KraftHeinz ($40bn) or Bank of America ($312bn).

So I read the Apple conference call to see what the fuss was about, but all I could find was, “Suppose you want to create a custom bedtime story for your six-year-old who loves butterflies and solving riddles, put in your initial idea and send it to ChatGPT to get something back she’ll love.”

Surely there’s more to this than bedtime stories?

OK, how about, “If you need menu ideas for an elaborate meal for friends using freshly caught fish and ingredients from your garden, you can just ask Siri. Siri determines that ChatGPT might have good ideas for this, asks your permission to share your question, and presents the answer directly.”

Aren’t you a little worried that these are the best ChatGPT / Siri examples Apple could conjure up at their Worldwide Developers Conference?

mmm…

But won’t this kickstart an iPhone refresh cycle?

Perhaps.

But we can now get stories and recipes from our ChatGPT / any AI app.

We don’t need expensive new iPhones.

Besides, Apple hasn’t said what this will cost them; OpenAI is no longer an NPO.

Similarly, I read on Valérie Noël and the Syz Group’s excellent weekly update that Nvidia added $1trn in market cap in 32 days.

Equal to Berkshire Hathaway, which has taken Warren Buffett 60 years to build!

And since then, it’s overtaken Microsoft to become the largest company in the world.

So, I think this level of euphoria suggests the AI hype is peaking.

Nvidia will be fine; it’s the “gorilla” and has a “moat.”

For now.

But nothing stands still in technology – remember Nokia, Netscape, and Nortel?

They were also once considered “gorillas.”

And everyone thought Intel had a “moat” in chips.

But in days gone by, castle moats didn’t keep enemies outside the walls forever.

They drained them, filled them, tunnelled under them, or built siege towers.

Sooner or later, enemies stormed the castles.

So Nvidia’s “moat” won’t last forever.

But unlike previous tech winners, their profit pool is now targeted by their largest CUSTOMERS.

And that’s different – Verizon and AT&T weren’t trying to compete with Cisco to design their switches and routers.

Consider the recent examples:

wind energy;

solar power;

EVs;

food delivery;

and fintech.

Remind yourself that.

Narratives move markets in the short term, but.

Numbers matter in the long term.

And these AI numbers don’t add up.

So you may be trying to solve the “riddle” of how to beat this market now.

But be careful of telling yourself “bedtime stories” about the price being justified because “AI is changing the world.”

That’s often a “recipe” for disaster.

Disclaimer:

Ranmore Fund Management Ltd is authorised and regulated by the UK’s Financial Conduct Authority.
The content of this marketing material is provided for information purposes only. It does not constitute or form part of any offer to issue or sell or any solicitation of any offer to subscribe or purchase shares, units or other interests in investments.
Past performance does not predict future returns.
Portfolios managed by Ranmore Fund Management hold no positions in any of the aforementioned companies.