Notes5-29-2023

As you may be aware, talk of AI has attracted a great deal of attention in media, business, and investment. Some say that this is pure hype, reminiscent of the dot-com bubble, while others say that this is once in a generation investment opportunity. (See the quoted links for a variety of opinions, most of them are highly respected) My guess is somewhere in between. Open-AI uses a large (natural) language model). I doubt that this approach can be leveraged in other AI fields. The book by Kissinger et al with an emphasis on Google’s approach could be more important since it includes war, international relations, and many other fields. However, the progress of Open-AI is significant. The main point is that it can be applied commercially right now. It is unclear whether other AI fields can use similar methods or stimulate new approaches.

Now turn to investment. All big tech, Microsoft, Google, Apple, Meta(Facebook), Amazon will benefit. If this new technology does not improve their top-line or bottom-line, at the minimum this wave of investment will strengthen their competitive positions. This new feature (natural language processing) requires huge investments. All big tech companies are cash flow positive and have a hoard of cash to back them up.

To upgrade application devices, you need chips, a lot of them, and very powerful ones. The best position of all semiconductor companies is Nvidia. The reason is this. The linchpin of chips used to be Intel. Remember Moore’s Law? Intel has been relying on the CPU. The problem is that the CPU cannot be used for computing the large language model, or otherwise it will be so slow that rendering it useless. Nvidia provides GPU. GPU stands for the graphic processing unit. As of right now for semis, Nvidia is the only game in town. That is why Nvidia outperforms almost everything else on the stock market. James Crammer’s advice on Nvidia: own it not trade it. I agree with him on this. Only two stocks he has such advice: Apple and Nvidia.

For most of you, staying with SP500 may still apply. A few years ago, I advised to friends on index investing: 50% SP500 and 50%Nasdaq 100. The Nasdaq index (or 100 index) contains mainly the big techs including Nvidia. So you get all the benefits with less risk. In view of recent development, you might consider increasing the percentage, say 70% of QQQ. Which percentage is your personal choice: from 50% to 100%.