The Strategist

The twins – Y2K and A.I.

The topic of "artificial intelligence" (A.I.) is currently an integral part of mainstream media. Although very intensive research has been going on in this field for years and enormous sums have been invested, the breakthrough onto the big stage was not yet achieved. This changed when Microsoft's media-rich appearance with OpenAI - the developer of ChatGPT - opened the big arena in the spring of 2023, making investors aware of the potential.

Thomas Wille
Temps de lecture
10 minutes
The twins – Y2K and A.I.
© Shutterstock

As a result, some investors even ticked off Alphabet with its Google search engine as a discontinued business model. But Alphabet's empire has struck back in recent weeks with a competing product, ushering in the "gold rush". After Nvidia presented its earnings and outlook a week ago, the hype was fully ignited. Nvidia is comparable to the "shovel producer" in the "Klondike gold rush" at the end of the 19th century, since the company, as the most important semiconductor producer, is responsible for making A.I. technically possible (among others).

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The Y2K moment

After almost 30 years in capital markets, I could not have imagined until half a year ago that I would again experience such a "gold rush" as in the late 1990s. At that time, the year 2000 problem (Y2K) was the driver for significant investments in the technology sector. The Y2K problem refers to a potential computer failure related to formatting and storing calendar data. At that time, many computer programs represented four-digit years using only the last two digits, making the year 2000 indistinguishable from 1900. In many industries, there was massive overinvestment because companies were afraid of not being Y2K compliant. Any budget that a CTO asked for was generously approved by management. With the two BigTechs, Microsoft and Alphabet, and Nvidia as the "shovel manufacturer" in tow, A.I. is now having its Y2K moment. In the current challenging economic environment, which is characterized by low growth and high price pressure, no one wants to miss out on getting in on this trend.

From hype to long-term success model?

In disruptive technology cycles, there are always hypes when the intrinsic value of a share and the actual price diverge. As an example, consider a classic Y2K proxy: Semiconductor and telecommunications equipment company Qualcomm. At the time, Qualcomm's share price had risen from 5 US dollar in March 1999 to 100 US dollar in January 2000. The company was successful then and remains so today. But more than 20 years later the current share price is just at 115 US dollar.

Risk management at the core

With its groundbreaking applications, A.I. will influence and change our lives in the coming years. Some industries will be more affected, others will even lose their raison d'être. There will be an enormous transformation. However, humans often repeat the same mistake by overestimating the short-term impact of a technological achievement and underestimating the long-term impact on value chains, production processes and services. The bubble or Web 1.0 are two examples. From my perspective, it will be no different with A.I. For us, as long-term investors, risk management is enormously important in these phases, not only to build up capital over the long term, but also to secure it. We remain convinced of A.I. in the long term, but proactive portfolio rebalancing should be a matter of course after the strong price gains of recent weeks.

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