In the early days of the internet, scepticism swirled around the notion of a global network connecting computers.
People questioned its reliability, its security, and even its purpose. Yet, as history unfolded, the internet proved to be a transformative force beyond anyone's wildest dreams. It democratised information, revolutionised communication, and reshaped entire industries. Fast forward to the present, where another technological marvel, artificial intelligence (AI), stands poised at the frontier of innovation. As technology strides forward, the world's energy demands have skyrocketed, with artificial intelligence (AI) at the forefront of this surge. This escalation poses significant challenges and opportunities—an area we have recently begun to delve into.
The rise in energy requirements extends well beyond AI. Data centres are vital for powering our digital landscape, cryptocurrency mining operations require massive amounts of juice, and the widespread adoption of electric vehicles contributes to the exponential growth in electricity demand. We first highlighted the importance of semiconductors back in April 2023 when we introduced the concept of megatrends. Back then, we used the example of the automotive industry and the increasing adoption of electric vehicles (EVs), and highlighted how investing in the “picks and shovels” of an industry can often lead to substantially higher returns for investors.
The surge in enthusiasm for anything related to artificial intelligence (AI) has continued apace in 2024, a theme we have discussed on several occasions, including here and here (to provide readers with useful topical information but less than the overload and euphoria present in the mainstream media). The poster child for the rally, NVIDIA (NASDAQ: NVDA), has seen its share price continue to soar, increasing a whopping 77% year-to-date on top of the more than tripling that occurred in 2023 (for more information on NVIDIA, we wrote a specific article discussing the company here). While we agree that the AI trend is real and has the potential to truly transform certain industries, there are a few risks that we believe are not being given enough attention.
While ‘rizz’ (the slang term used to describe romantic charm) was the official Oxford Word of the Year, for the share market it was undoubtedly “recession.” As we highlighted in our article “The Power of Positive Thinking,” 2023 began with many dire predictions about the economy and asset prices that failed to pan out. In the face of inflationary pressures, the fastest pace of interest rate increases in history and an increasingly fraught geopolitical environment, the U.S., Australian and global economies continued to grow, real estate prices proved resilient, and both the U.S. and Australian share markets retested the record highs of December 2021.
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