Bradley Amoils
Data suggests it’s still early days for the generative AI infrastructure theme, with reasons to be confident certain high-quality companies aligned to AI’s rapid adoption will deliver earnings growth well ahead of consensus expectations, making current valuation levels highly attractive, according to a global investment manager.
The facts and evidence suggest markets are still in the “early innings” of generative AI infrastructure, says Bradley Amoils, Managing Director and Portfolio Manager of US-based Axiom Investors, which manages the Pengana Axiom International Fund, which has delivered 32.4% per annum net of fees for the 12 months to 30 November 2024 for Australian retail investors.
“A snapshot of the global server environment shows that this theme is very nascent. For example, less than 2% of the 12 million servers sold in 2023 were AI enabled.
“Nvidia is expected to sell around 450,000 AI-enabled servers in 2024, but this is a small fraction of the 12 million servers which were sold just last year.
“If we look further ahead there are suggestions AI enabled servers might account for 5.3% of servers sold in 2026, which would still fall well short of demand, and suggests we’re only at the beginning.”
Amoils said Nvidia remains well positioned in generative AI with forecast revenues continuing to impress. “How high Nvidia can go is tough to say, and we don’t like to forecast these things, but if we look at the forward revenues for the next few quarters there is no sign of this trend slowing down.
“If a chip goes into the foundry this quarter it creates revenue the next quarter, because it takes about 3-4 months to make a chip.
“A lot gets written about Nvidia’s share price, but the earnings, forward guidance and TSMC monthly sales data have been there to back it up.”
Stocks in the shadows of Nvidia, including TSMC and Vertiv, are also proving attractive to investors, according to Amoils. “These companies are providing interesting data, and show the AI theme extends from mega cap to small cap positions.
“TSMC is a foundry partner with Nvidia and Apple is TSMC’s largest customer. AI-driven semi-conductor demand is insatiable, which is strongly benefitting TSMC.
“Vertiv partners with server manufacturers to cool AI chips, which provide a disproportionate amount of power and heat.”
Amoils said generative AI falls into a sweet spot within the ‘Four D’s’, which are the major trends currently driving the global economy, comprising Demographics, Debt, Deglobalisation, and Disruptive innovation.