AI what next?

In the second quarter, probably no other topic dominated stock markets as much as "artificial intelligence" (AI). We have already addressed this topic twice in this publication over the past few months, but we still think it makes sense to provide an assessment at the start of the second half of the year as to where we think things will go from here.?

When we published an investment idea on the topic of AI in spring of 2023, we were convinced of the enormous medium- and long-term potential, but the price fireworks of individual stocks in the last three months have also surprised us. The topic of AI has been picked up again and again by the media in recent years but found little to no interest among investors. With the emerging popularity around ChatGPT, this changed abruptly and recently the price fireworks of the Nvidia share put the new technology once again in the spotlight on the stock markets.?

Price versus value

In the medium to long term, investors can assume efficient capital markets, i.e. the actual value of a company should correspond to the price traded on the stock exchange. In the short term, this is not to be expected, as the example of the "dot.com bubble" in March 2000 impressively shows. Due to the AI hype in the media, share prices of some companies have moved far away from their long-term "intrinsic" value in recent months, although as long-term investors we are sticking to our positive assessment. As so often, it once again comes down to selection.?It is a matter of analyzing which companies are really making money with AI and, above all, what percentage of total profit is accounted for by sales with AI. In doing so, companies with real AI potential must be differentiated from those that are merely jumping on the trend.?

AI losers

In a disruptive revolution of this magnitude, there will not only be winners. There are various studies on the automation potential of AI in the coming years. The average is currently estimated at 25 percent, although there are also industries where the potential is estimated at almost 50 percent. The truth may lie somewhere in between. The key question is whether these companies see the AI challenge as an opportunity or fight it. In our view, only those who see AI as an opportunity will be among the winners. In addition, some companies will simply lose their rationale for existence, or their margins will come under such pressure that investors should keep their hands off them.

Risk management

We remain convinced that AI is best integrated into a portfolio via "US Big Tech". In such a revolution, where stock prices have already risen massively in the short term and volatility is high, risk or position management is of great importance. This applies not only to the AI sector, but to the entire technology sector, which a globally diversified investor cannot ignore in the long term.