The Stocks That Could Survive an AI Bust

Merryn Somerset Webb (0:02)

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Stephen Yiu (0:07)

But if you do believe that AI is very powerful, that it's going to bring some positive to the human population across the board, I mean, obviously, that's going to be some negative as well, then what you really want to do is to invest into companies that are receiving the spending or investment, which we call them the picks and shuffle companies.

But then when you are thinking about the company that investing into AI to make an AI model to come up with different use cases and all that, that's going to be a try and error process in a way that a lot of them are not going to survive, but some of them are going to make it to be very successful. It doesn't mean that you can't pick them, but then I think this is more of a venture capitalist market, isn't it? You invest into probably 100 companies, and then some of them worked out, most of them doesn't, but then you still make a lot of money.

Merryn Somerset Webb (1:06)

Welcome to Merryn Talks Money, the podcast in which people who know the markets explain the markets. I'm Merryn Somerset Webb, and this week I'm speaking with Stephen Yiu, Chief Investment Officer of the Blue Whale Growth Fund, which manages more than $4 billion. Stephen is a major investor in technology and has built something of a reputation for identifying likely winners and indeed the losers of the AI boom. His record makes him a voice worth listening to, and we have had him on the podcast a few times before. From his launch in September 2017 to the end of August, the fund returned over 320%.

That's again just under 130% for its benchmark. So far this year, it has outperformed the index by more than 40%.

But with so much of the global market now riding on enthusiasm for AI, can investors really diversify their portfolios enough to survive a disappointment? And if so, which companies might still prosper if the boom begins to fade? Stephen, welcome to Merryn Talks Money.

Stephen Yiu (2:04)

Thank you.

Merryn Somerset Webb (2:05)

Now, you are not really an AI fund. I know that you've had so much of your investments in AI related stuff over the last couple of years that people look at Blue Whale and they go, well, that's an AI fund or that's a tech fund or that's just a growth fund, whatever it is. And of course, you are none of those things. You are a fundamental stock picker. However, before we move on to talking about stocks and how you pick them, do you mind if we just have a chat about the AI environment at the moment?

Stephen Yiu (2:34)

Yes, of course.

Merryn Somerset Webb (2:35)

Can we start with the dangers and why we're talking so much about the dangers at the moment?

Stephen Yiu (2:42)

I think that's a good starting point just because if you think about the pace of how AI is, the AI cycle has been gone through over the last few years, has been very much on an exponential trajectory, which means everyone is now feeling part of AI, whether you have ended up investing in the AI or not as a different story.

And of course, if a technological advancement is taking shape very, very quickly without all the other gut rails around it, then we could end up in some troubles in time. And hence, I think we now realize as a community that we need to start probably putting some policies in place and thinking about the implications of what this might bring is not all positive, there's certain negative. But unfortunately, I think the, maybe the policy setter are still very much behind the curve. And obviously, thinking about the committees, how many meetings they need to do until they make some changes in terms of what AI is about or how we're going to deal with it is going to take a bit longer. There's been a narrative to suggest that we're going to see a lost generation and what it means is like by the time that we would have something public that we can actually use and control AI, it might take longer than expected.

Merryn Somerset Webb (4:01)

Yeah. But controlling AI is a global business, right? You can't just have one country controlling AI, you can't put regulation in place in the UK and the EU, just put regulation in place in the US. When you hear these calls for regulation, it's very hard to understand how that could possibly work.

Stephen Yiu (4:21)

It's probably not going to work. It's not going to work.