Artificial Intelligence: A Seismic Secular Growth Opportunity

After a challenging year for growth stocks in 2022 and the failure of several regional banks earlier this year, investor attention has shifted significantly towards the potential of AI. The adoption of OpenAI's ChatGPT, which now boasts over 100 million monthly users and 1.8 billion visitors per month, has triggered a surge of interest in generative AI. While not new, the recent buzz surrounding the technology has been driven by the simplicity of new user interfaces, enabling the creation of high-quality text, graphics, and videos in mere seconds.

Leading large cap technology companies such as Apple, Google, Meta, Microsoft, and Nvidia have been aggressively investing in AI and have experienced strong stock price appreciation as AI hype appears to be at an all-time high. Microsoft, through its partnership with OpenAI, has been a clear beneficiary, and Google has also made rapid strides, launching its competitive product called Bard. Google is also experimenting with embedding AI-powered overviews in search results.

AI is still in the early stages of its lifecycle, so it is too soon to evaluate its real economic impact. Nonetheless, we believe AI has the potential to be among the most disruptive secular growth trends of all time.

AI Is a Foundational Technology

As investors focused on growth stocks, we spend a lot of time analyzing secular growth trends – structural economic changes that create durable shifts in demand. In 2019 we published a blog that describes our view of the secular growth landscape, which we divide into three primary categories: (1) Foundational Technology (2) Replacement Product, Existing Market (3) New Product, New Market. In our view, AI fits into the first type, which we feel is the most important. Below is a small excerpt from our original piece that explains the concept:

Some technological innovations are so impactful that they not only generate their own wave of demand, but they also create a foundation upon which other businesses can grow.

While applications like ChatGPT are important, we believe the real value of AI lies in its utility as a platform. Just as the internet gave rise to eCommerce and social media, and smart phones enabled ridesharing and on-demand dining, we expect AI will follow a similar trajectory, spawning businesses that have a comparable influence on how we live and work.