Beyond Semiconductors as AI Moves Toward Monetization and New IPOs

SPEAKER_1 (0:00)

Lots happening in these markets. Joining us now, I'm very pleased to say here at Happy York Stock Exchange is Brad Warden, Senior Portfolio Manager over at Nomura Asset Management International. Brad, I wanna get your thoughts on just exactly what is happening in artificial intelligence at the moment. I mean, my colleague and I, you and I were just kind of joking offline about, you know, what we've heard from Anthropic today via the leaked IPO prospectus. But I mean, it just fits into sort of a broader narrative at the moment. We've had Aura delaying its IPO off the back of a number of other companies as well. I mean, obviously, you've got Open AI, which has pushed back the release of a new model as well on some of these security concerns. Interesting yesterday, worst day for the S&P in more than a month, even as Nvidia sort of came out and said, hey, look, we're not going with this AI slowdown. We're going to try to fix the problem here.

How are you tying it all together? The market seems to be arm wrestling right now with these kind of narratives of AI anxieties versus what to do about it.

Brad Warden (0:51)

Right. You know, it's a really interesting time. We've gone through this period of time of kind of almost pure mayhem and goodness for a long period of time, right? So you had the markets early this year that we discovered that you could do coding in AI, right? And we had this explosion to the upside, which was across semiconductors. It was across a lot of different names. And then you got to a period of time where you're like, OK, well, what's the next phase? What's the sustainability of it? Right. So we started asking those questions around sustainability, which then you saw somewhat of a pullback. And then as you saw earnings come out this last earnings season, you actually saw that breadth it broadened out a little bit into some other areas where the stocks work. Now, what I think you're seeing now, and that's from a safety perspective, right? So the question around lots of headlines out there, concerns about AI doing different things. Well, what happened was, I think these companies pushed hard, really hard going forward for a period of time on the engine side of it, right? Without thinking about those guardrails, right?

So we are pushing forward, we're competing to try to get the newest and best model out there the most quickly without really thinking about the safety piece of it that goes along with it. And I think now a little bit of a slow down in that and correcting that is a good thing, I think for the long term and for the longevity and honestly for the sustainability of the AI way.

SPEAKER_1 (2:10)

Do you think all that AI slow down talk is part of the reason why we've gone back to, I suppose that prevailing narrative of bad breath that we had seen prior to the Q2 earnings? I mean, we've seen the make seven last week rallying to another record, really trying to reestablish that market leadership ahead of a fresh reporting season here. We did start to see some of that monetization proof, but I'm just wondering why the change in the market now to more of that concentration?

Brad Warden (2:38)

Yeah, I think that a little bit of the nervousness around this that we were just talking about. Also, if you look at what's happening is under the covers here, obviously the mag seven did not perform real well during this period of time, right? They're spinning capex from an equity perspective, higher capex, lower returns, those types of things, questions about is this spending actually going to show up from an economic perspective for them? And now you worry about debt markets, all these other things that are happening now. And then what you saw was, okay, well now you're starting to see a little bit of the proof in the pudding, right? You're seeing other things. Now you're starting to see some applications show up that show potentially, could you monetize some of this, right? With some of the consumer apps we've seen in the last couple of weeks, you know, there's been a lot more focus on Muse that came out, right? We can touch on that. And I think that's the part where you start to, you need a broader market, right? In an adoption, where you actually see some monetization. And that's what we really look at from our investment philosophy is really looking forward. If you look at sort of where technology has come along the way, what happens a lot of times is our frame of reference is for the past, right? If you think about when the PC came out, we were thinking about that. Oh, that's just an improved typewriter, right? And so as you start to think about these things is looking forward. And that's something that we really try to do is to look forward and say, okay, what is the next trend that's happening? And we're really bad at that in terms of as humans looking forward on those things because the change is so fast and so big. We always underestimate that and we always underestimate it not only on the change side of things, but on the economic side of things as well.