Everybody loves Charts!
Every so often, I’ll check in to show items floating around Wall Street circles and blogs.
Longer term trends in the markets and economy.
Extra details on what seems underappreciated or overhyped.
Link to some great explainers on the concepts.
**Everything as of 5/15/2024
At this point, just about everyone knows something about the A.I. boom taking place and the popular narratives around them-
Trying out ChatGPT
Debates over whether A.I. will steal our jobs
A viral clip of a robot dog running an obstacle course
And through it all, we have the trading poster child of the movement: Nvidia - up over 88% this year and over 600% since Jan 2023!
During each innovation boom, a divergence between the lucky winners and oblivious losers emerges which inevitably pushes every Johnny-come-lately into the fun.
Before the A.I. driver, it was cryptocurrency. Before crypto, it was social media IPOs. Before social media IPOs, it was a hot housing market, and before a hot housing market it was the original Internet dot-com boom.
The AI bonanza- at its core and in hindsight- really kicked off due to 2 breakthroughs::
A 2017 Whitepaper from Google on their Transformer architecture for AI foundational models
Fine tuning GPU architecture for optimized compatibility with Machine Learning Vector models
As much as people would like to admit they saw each boom coming, in reality it’s nearly impossible to be in the right place at the right time. So what is an investor to do when someone ELSE strikes gold? The next best thing — sell shovels to the new would-be gold miners!
Who will the shovel sellers be?
The Shovel sellers are the entrepreneurs and industries which benefit from the advancement and speculation of a new foundational technology. The Echo plays are the tangential investments driven higher as a direct result of the initial pulse of success in the core innovation and the subsequent chase by others.
Presently, all the AI startup firms are essentially modern “wildcatters” hoping to find a niche or stronghold to exploit. On the other hand, the shovel sellers get to sell inputs to a defined market of startups with serious needs and who have money to pay.
Unfortunately, to even “sell shovels” effectively, you need the education to see the opportunity, the capital to build a supply chain and product, and have the networking connections to make the sale, work across legalities etc. A privilege still only a few are able to muster
Where are the shovel sellers likely to emerge?
Raw Material Providers
Raw materials of silicon, copper and lithium will be needed as inputs to physically build all these upcoming AI chips and racks of servers. Concrete and steel is needed as well but it’s relatively paltry by comparison.
We’re already seeing copper run up due to the increasing demand. Silicon and lithium are taking a breather but possibly preparing for another squeeze higher themselves soon.
Copper
Lithium
Silicon
Private Capital and Prime Lenders
Once again, the rich get richer. No matter how wealthy you may be, you can’t build $7 trillion worth of factories and datacenters without a little help from lenders and investors.
Unlike tiny garage startups, we’re talking about borrowers with stronger credit ratings than some countries. AAPL, MSFT, AMZN to name a few are not just some overnight startups with a business plan and a dream.
Banks, private lenders and venture capital firms are eager to lends these companies money to lock in juicy interest rates on corporate IG bonds now before rates fall.
OpenAI also has a profit-sharing agreement with Microsoft, which has invested billions of dollars into the ChatGPT maker already so equity plays will also be in vogue.
Utilities & Energy Producers
Power consumption plays are already leaking into mainstream discussion. As the number of datacenters demanded for increased compute power rises, so too will the electricity and energy to operate them. New “training” AI datacenters such as the ones Sam Altman is dreaming about at night will take 4-7x the power requirements as current centers to function.
This energy consumption trend is already showing itself in the recent rise of utilities market cap calculations and ETFs.
Not only will current power plants be taxed harder and for longer, but a new generation of plants (green, nuclear and oil & gas powered) will be mandatory to keep up with this energy appetite.
Interested in being on the Trader Dads Podcast in 2024? Shoot me an email! I’d love to have subscribers on to sit for a discussion
TRADERDADS MAILBAG
Thoughts? Questions? Comments?
Reach out! Maybe I’ll do a full post on the topic or as a Q&A
traderdads@substack.com
