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UBP: Generative AI – an opportunity for active asset managers

by Fares Benouari

After a disappointing year for tech investors in 2022 – with the Nasdaq 100 falling 33% – some
observers called time on a sector that had totally dominated the last decade. It was claimed that
movements in “concept stocks” and their exuberant valuations recalled the bursting of the internet
bubble, that sector giants were running out of steam and that Moore’s Law, regarded as crucial for
technological progress, was doomed: these were some of the arguments brought forward by the
bears, who were galvanised by the decline of a sector that appeared to be in its death throes.

However, the tech sector received a new boost “generative AI”. So caution is required, about enough to drive the artificial brains of Google,
when the first mass-market version of ChatGPT the sector in general and the semiconductor Microsoft and Oracle. However, opportunities
was launched in November 2022. Above all, segment in particular: in the short term, we see must be measured against the companies’
Nvidia – a US designer of processors, chips more value in equipment manufacturers than valuations and the investment cycle in the
and graphics cards – put the smile back on in chip producers and designers. semiconductor industry, which is seeing secular
investors’ faces in May with some out-of- growth but still subject to large cyclical swings.
this-world guidance. This was a wake-up call Secondly, where a company is perceived to
as consensus had implied that its stock was be under threat from ChatGPT and Bard, the If analysis is geared towards seeking value
significantly overvalued, which proved wrong market has been indiscriminate. Giants such as creation as measured by cash flow return on
in hindsight. Accenture and Intuit initially suffered from the investment (CFROI ), short-term noise can be
®
idea that their services could be bypassed by filtered out. This makes it possible to maintain a
So, with the Nasdaq 100 up 31% by the end of powerful algorithms, whereas these companies steady course, with a preference for companies
May, is it time to climb aboard the tech rocket actually regard generative AI as an excellent capable of increasing their CFROI or keeping it
after the sector’s stunning performance so productivity tool. stable at a high level, despite the competition.
far in 2023? The approach also helps avoid the many
Although the US leads the way with a number companies that have been exciting investors
The first thing to note is that many companies of obvious opportunities ranging from mega- on the basis of unrealistic assumptions.
have seen their valuations run far ahead of their caps to smaller companies, Switzerland also
growth forecasts because, as we know, the has some attractive companies that are key One thing seems certain: although the disruption
market does not wait. In some cases, to get the suppliers to the semiconductor industry. The caused by AI will extend far beyond the stock
market’s seal of approval, all a company needs expertise of VAT Group, Inficon and Comet market, it still represents a big opportunity
is a press release mentioning the magic words allows the production of chips that are powerful for stock-pickers and active asset managers.

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