AI’s Next Winners Could Go Far Beyond Semiconductors

Sam (0:01)

Joining us now is Gene Goldman, CIO of Saterra. To talk about these markets, Gene, very good morning to you. Obviously, Semi's got a gut check this week. We continue to see this trade lower again this morning. I mean, obviously, we've had the Chinese competition fears. We've had some pretty high-profile warnings as well. Then you had CoreWeave, which kind of became the poster child of some of the worries around the cost of capital.

I mean, that all came in the face of some very nice numbers from ASML and TSMC. My question is, are there reasons to be fearful or is this a healthy pullback, do you think?

Gene Goldman (0:37)

Yeah. First of all, Sam, thanks for having me back on your show.

All this ties into the AI trade. One thing we've said so many times to our clients and advisors, this AI trade is not over, it's just a moving target. You think about this AI, we love AI. AI is in the early innings, productivity gains have historically driven the biggest long-term returns and we haven't really seen that in the data yet.

Every technology cycle that we see, like whether it's electricity, whether it's the Internet, it took years for productivity to move its way into the market. What we're seeing right now is we're calling the AI investment continuum. Basically, when a new technology takes off, the money doesn't flow to everyone at the same time. It starts with companies that make technology and gradually spreads to businesses that use it. Again, that's the AI investment continuum. What we're seeing is it's a three-stage process. Stage 1, the chip makers do well. We've seen this already. Stage 2 comes to companies that build the chips, what the stuff that the chips run on, like data centers, power, networking. We've seen this already. The third section, probably the most important, are the industries that use AI to work, like healthcare, banking, manufacturing. If you think about the tech bubble, it's a very similar parallel situation. The tech bubble, we saw semis like AMAT, AMD all do pretty well. Then it shifted to Cisco and the networkers, and then it became going to B2B, B2C, and then finally network streaming. All this taken together, it's a very similar perspective.

I think the key point is, the first winners won't be the only winners in the AI trade, but they'll not necessarily be the ones that stay on top. It's going to spread and widen, and that's why in our portfolios, we are big believers in taking advantage of other asset classes, other sectors, not just technology and AI.

Sam (2:17)

All right, yeah, I suppose you need to, obviously, offset some of the AI exposure, particularly in a week like this. So what do you like?

Because, I mean, obviously, healthcare has had a very nice few sessions. It hit an all-time high yesterday.

Gene Goldman (2:32)

Yeah, I mean, of course, our favorite sectors are technology and communication services to take advantage of the AI trade, but then you look at those companies and those sectors that should do well when AI gets implemented in their businesses to help protect and drive profit margins. Healthcare is one great example. You look at the potential of precision medicine and the future around that with AI and implementation. Financials, financials had a little tough time, but valuations are much more attractive right now. We don't think the economy is going anywhere down. We think it's a pretty positive situation we have for financials right now.

Sam (3:05)

So you're looking at healthcare and financials as still kind of beneficiaries of the broader AI trade. So use cases within a sector, obviously the financials supplying a huge amount of capital behind them. But is there an AI hedge right now? I mean, are you looking at fixed income?

Gene Goldman (3:23)

Yeah, so an AI hedge, the easiest thing to do for an AI hedge is just to invest outside the US. We're not big believers in investing outside the US at this point, we're actually underweight because we do think the dollar will continue to appreciate. We do think that we want to be in our home base given that we see much more opportunities here. But given the fact that outside of the US, you look at there's a heavier weight towards financials, heavier weight towards healthcare, and the AI trade really is not there outside the US. Within fixed income, fixed income is one of our best bets right now. We do think bond yields will continue to move lower. We've been saying this for a while. We have, bond yields are very attractive. We have high real yields over 3%.