Ai is here to stay

I came across one of the most impactful articles about AI I have ever read. I am going to link it below. I will use ChatGPT to display the important information because I do not want to mess anything up with my human aspect. At the end, I will go over the implications of this information.

https://www.barrons.com/articles/ai-technology-stocks-d289e665?mod=hp_LONGREADER_B_1

Key Takeaways: Generative AI and Its Economic Impacts

Generative AI Revolution: The Cost vs. Opportunity

• Two years into the generative AI revolution, investors are grappling with its high costs, which reflect an inevitable stage in the technology hype cycle.

• Big Tech firms are projected to spend over $200 billion in capital expenditures this year, primarily for data centers, chips to train AI models, and energy for their use.

• AI investments are being compared to foundational infrastructure like highways and electrical lines, with the potential to create a more productive economy.

Shifting Industry Focus: Utilities and Energy

• AI is disrupting industries traditionally considered slow-moving:

  • Philippe Laffont, of Coatue Management, highlights a pivot to utilities, energy, and industrials, which have seen significant growth due to AI demands.

  • AI data centers are projected to use 10 times the energy of current cloud-computing platforms.

AI Data Center Explosion

• Data centers are scaling up dramatically:

  • Typical cloud data centers use 50 megawatts; AI centers are scaling to 500 megawatts or more.

  • Industry leader Vertiv Holdings reports plans for 10 data centers exceeding 500 megawatts, scheduled for completion within three years.

• AI technology is advancing through “scaling laws,” where more computational power leads to exponential improvements in AI models.

Soaring Costs of AI Model Development

• The cost to train AI models is skyrocketing:

  • OpenAI’s GPT-4 model cost $300 million to train, with next-generation models expected to cost several billion dollars, escalating to $25 billion or more.

  • Elon Musk’s xAI recently deployed over 100,000 Nvidia Hopper GPUs, with plans to double that capacity.

AI Driving Business Transformation

• Generative AI is reshaping productivity and data usage:

  • AI tools are being used to analyze vast pools of unstructured company data, uncovering valuable insights.

  • Bristol Myers Squibb has cut clinical trial cycles by two years using AI-driven drug discovery and data optimization.

  • CEOs from Meta and Google report substantial gains:

    • Meta: 8% increase in Facebook time and 6% on Instagram through AI-driven recommendations.

    • Google: Over a quarter of new code is now AI-generated, driving significant productivity.

Investment Outlook: Nvidia, Vertiv, Oracle

• Nvidia: At the center of the AI infrastructure buildout.

  • CEO Jensen Huang estimates a $1 trillion transformation in data centers over 4–5 years.

  • The NVL72 AI system delivers 30x performance over previous GPUs, making it essential for AI advancements.

  • Wall Street projects Nvidia stock could rise to $162.50 by 2027.

• Vertiv: Essential for cooling and powering AI data centers.

  • Offers 30% energy savings with liquid cooling systems.

  • Could see stock growth to $137.50 by 2027.

• Oracle: The leading cloud provider for AI model companies.

  • Expected to achieve $10 per share earnings by 2027, with a stock target of $250.

Generative AI: A Long-Term Opportunity

• CEOs of major tech firms emphasize AI’s transformative potential:

  • Amazon’s Andy Jassy calls generative AI a "once-in-a-lifetime opportunity."

  • Microsoft reports its AI business is on track to exceed a $10 billion annual run rate, the fastest in the company’s history.

• As Dell’s Arthur Lewis states, “We are in the very bottom of the first inning for generative AI.”

Investors are advised to approach the AI boom with strategic caution, focusing on key players like Nvidia, Vertiv, and Oracle, which are best positioned to capture long-term growth.

AI is not going anywhere. Although the idea that the market could correct itself from the insane growth the SPX has seen over the last year is valid, I do not think it will be near the level of the dot-com bubble. The key takeaway is leaning investments toward industries that chipmakers rely on.

VRT is going to see growth alongside NVDA, and Oracle is the primary cloud platform service. As an investor, seeing that NVDA has a competitive advantage in GPUs will drive returns. Similarly, VRT has a competitive advantage in cooling. Finding companies that every industry has to rely on and buy from because their product is undeniable is where you make returns. Until NVDA or VRT has notable competition, they will be undeniable and will continue to be undervalued despite recent growth.

In addition, in the news, you constantly hear “AI, AI, AI.” What's going to power that? AI requires 10x more energy. As an investor, finding gaps like this is critical. As stated above, institutions are beginning to structure their portfolios around this idea.