Publication details

The Australian Business Review

March 22, 2024

AI boom takes off, but it’s not too late to get on board


James Kirby

Will the wave of excitement over artificial intelligence build to a sharemarket bubble? You bet it will.

Is there money to be made before everyone gets carried away? It certainly looks like it.

Close to a year ago we did our first deep dive into AI, and it was clear this theme could grip the sharemarket. Since then, it has done so with a vengeance.

Nvidia, the AI chipmaker which serves as the poster child for the sector, has more than doubled in value since that time.

The AI sector is now red hot and we have already reached the point where adding those two magic words – artificial intelligence – to a stock description changes the game.

This week the loss-making social media company Reddit, a 20-year-old digital message board service, finally got to make its debut on Wall Street, after trying to list since 2021.

A few months ago the Reddit promoters changed their story. They partially rebranded Reddit as an AI play with potential to monetise its data. To be fair it has already done a deal to sell its data to Google for $US60m a year.

And it worked. There was a 40 per cent lift in Reddit shares during its first session on Nasdaq.

On our own ASX, stocks that were already market favourites have been turbocharged with AI.

The outstanding example is NextDC. The data centre stock which powers AI computer processing is up 76 per cent over the last 12 months – that’s about seven times more than the wider ASX and we are talking here about a $9bn company, not a sharemarket minnow.

For anyone with an eye on sharemarket history then regardless of whether the hype around AI is fulfilled or not, the issue is how long before the market runs ahead of itself?

The dotcom boom is the best parallel. The promise of ‘the internet’ in the 1990s ultimately came to pass, but it did so more than a decade after the dotcom crash of 2000.

As tech guru Dan Ives from Los Angeles-based Wedbush Securities told Danielle Ecuyer on Ausbiz TV this week: “For AI investors, I think it’s 1995, not 1999.”

What comes next?

If Ives is right – and he was plying his trade back in the dotcom days – then there are years to go for investors to make outsize returns from both sides of AI – the incumbents and the upstarts.

The re-energised incumbents include the tech giants, banks, insurers and telcos who will cut out enormous costs through enormous lay-off programs.

On the other side, there will be the rising stars of the sector who will move from the mid caps of today to the big caps of tomorrow such as NextDC at home or indeed Nvidia overseas, which is on its way to becoming the biggest stock in the world.

Technologically, there are two very big changes coming off the back of AI-first.

There is accelerated computing where generative AI represents a leap forward over what can be done today. Instead of typing in a request for the best AI stock and getting a menu of stock choices, an AI-powered service could offer you the stock with the best numbers that would make the best addition to your individual stock portfolio.

Second, we have the arrival of ‘digital twinning’. An example might be where instead of struggling to make a real-life call centre operator understand your problem, you will deal with an AI-driven avatar that will be able to answer any conceivable question you may have. (There’s progress, right there!)

For investors, the twin drivers of AI breakthroughs and the anticipation of lower interest rates means the bulls are in control.

Leading global brokers continue to ‘upgrade’ their forecasts for the year even though Wall Street is up 10 per cent year to date. On the ASX the equivalent performance for the same period is 2 per cent.

AI expert Matt Barrie is also the chief executive of Freelancer, an online marketplace company with a $100m market cap. Speaking on the Money Puzzle podcast this week, Barrie says he sees a clear rerun of the dotcom period – except this time the entire cycle will be much faster.

Just like the dotcom boom, Australian investors have to look at both US indices and the ASX for opportunities.

The wannabes will countless, the winners will be counted on one hand. Think of, which is now a $9bn blue chip market leader, and then think of the dozens of dotcom rivals it once had which are now nowhere to be seen.

Usefully, we now have the option of not just buying Nvidia or NextDC (Appen, Brainchip or Weebit Nano) but also exchange-traded funds or ‘actively’ managed funds that concentrate on the AI theme.

A number of funds spring to mind. These are not recommendations. For the ETFs there is BetaShares Global Robotics and Artificial Intelligence ETF and from Global X there is Global Robotics and Artificial Intelligence ETF.

Among managed funds The Australian recently revealed the top holdings in Nvidia among Australian fund managers – at the very top of the tree were Alphinity, Munro Partners and Loftus Peak.

At this stage of what might well be a three-to-five year boom, the consensus is that big tech and tech-smart banks, insurers and property managers will win the early rounds. The next Seek Ltd is yet to be found.

Related articles