In August 2023, investors found fresh guidance through a report released by Goldman Sachs, presenting a smart alternative to the direct investment frenzy in Artificial Intelligence (AI) stocks. Opting for a long-term strategy, Goldman Sachs recommends focusing on companies that are leveraging AI to enhance labor productivity rather than those directly involved in AI.
Tagging the strategy as “AI Trade After Trade,” Goldman Sachs went ahead and shortlisted 50 stocks as strategic investment options in this category. While these investments might require a patience of several years to yield profits, there remains the ever-present uncertainty with no guarantee of returns, especially given the rapidly evolving market and the challenging management tasks that companies face.
Even with these risks, investors with a strong belief in the AI revolution’s investment potential might consider focusing on two promising sectors: power and land (real estate). Running and developing AI models is prohibitively resource-intensive; enormous data centers are essential for training these models and for offering AI services to the public. Also, these facilities demand substantial land for construction and an extensive, reliable power supply to operate.
Following up on this point, a team led by Thomas Thornton from Bank of America anticipated a significant rise in electricity consumption by data centers, projecting up to a double increase once all constructions are completed. Companies such as Eaton and AspenTech, which may benefit from increased demand for upgraded power grids and infrastructure, have been tagged as ‘buy’ investments by Bank of America.
Moreover, due to the expected rise in demand for electrothermal facilities, analysts have pointed out companies like Vertiv Holdings as potential beneficiaries. Furthermore, with data centers depending on Uninterruptible Power Supplies (UPS) to counteract power outages and voltage drops, Caterpillar is highlighted as a key provider of backup power solutions.
For investors seeking exposure in the real estate sector, the leading data center Real Estate Investment Trusts (REITs) Digital Realty Trust and Equinix emerge as viable options. Research suggests that with the increase in data center demand, these companies are strengthening their pricing power with each specializing in different phases of AI model development – Digital Realty Trust focusing on wholesale data center leases for large-scale AI training needs, and Equinix offering colocation data centers for immediate demand response, catering more to inference-based AI utilization.
Disclaimer: This article provides a summary of investment strategies based on the knowledge and experience of the subjects interviewed. It does not recommend the purchase or sale of any financial product. Neither the author nor the publishing entity assumes responsibility for any financial loss incurred by readers based on this article. Investment decisions should be made at your own discretion.
Key Questions and Answers:
1. What exactly is the “AI Trade After Trade” approach recommended by Goldman Sachs?
– “AI Trade After Trade” is a long-term investment strategy focusing on companies that utilize AI to enhance labor productivity instead of companies primarily engaged in the creation or direct provision of AI technology.
2. What are the anticipated challenges associated with investments in AI-enhancing companies?
– The challenges include the uncertainty of returns, the need for patience as these investments mature over several years, rapid market evolutions, and complex management tasks inherent in leveraging AI.
3. Why are power and land considered promising sectors for AI investment?
– Power and land are crucial because AI models and data centers require substantial energy and space to operate. Investors can benefit from the growth in infrastructure required for the increasing deployment of AI technology.
Main Challenges or Controversies:
– Rapid technological change: AI is a highly dynamic field, and a technology or company that seems promising today may become obsolete in the near future.
– Ethical concerns: As AI becomes more integrated into our lives, ethical issues, including privacy, bias, and job displacement, may affect the reputation and legal standing of companies in this space.
– Resource intensity: The significant power and land requirements for AI could lead to environmental concerns, which may invite regulatory challenges and increased costs.
Advantages and Disadvantages:
Advantages:
– High Potential Returns: Companies that effectively leverage AI for productivity gains could outperform competitors and provide significant returns to investors.
– Diversification: By investing in various sectors influenced by AI, investors can spread risk while tapping into the AI revolution.
Disadvantages:
– Long-Term Investment Horizon: Returns on these types of investments may take many years to materialize, potentially locking up capital.
– Uncertainty: The evolving nature of AI technology makes it difficult to predict which companies will succeed long-term.
Related Links:
For further research on this topic, the following main domains may be of interest:
– Goldman Sachs
– Bank of America
– Eaton
– AspenTech
– Vertiv Holdings
– Caterpillar
– Digital Realty Trust
– Equinix
Disclaimer:
These links are provided for further research and are not endorsements of these entities. Investment decisions should be made based on individual research and discretion. Please be aware that URLs and the content provided by the aforementioned links were considered valid and relevant to the topic at the time of this writing and may change.
Remember to consider all investments’ risks and consult a financial advisor before making any investment decisions.
The source of the article is from the blog exofeed.nl