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How AI is changing the face of global computing

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

This is the second article in our AI series, you can read the other articles here:

The AI revolution: bringing joy to your daily commute
AI – helping to speed up drug recovery

In the second of our new ‘AI: The revolution’ series, fund manager Storm Uru of the Global Innovation team looks at the role of AI in global computing and focuses on a key success story.

In the past few months, Nvidia's CEO and founder, Jensen Huang, has propelled himself into the league of iconic business trailblazers such as Steve Jobs and Bill Gates. Huang has made it clear: Nvidia isn't merely an entrant in the race to infuse AI into the global computing matrix, it's leading the pack and arguably dominating the field.

The meteoric surge in Nvidia’s stock price over this period calls for a deep dive into its fundamentals. This exploration reveals a solid foundation. The company's latest financial forecast, unveiled just two weeks ago, was breath-taking even for the most seasoned industry experts. It didn't just outperform Q1 estimates; it sent shockwaves through the market with an astounding 60% and 100% upward revision respectively of Q2 revenue and earnings.

Alongside this remarkable outlook, Huang underscored the vast potential of the data centre market—a $300 billion opportunity primed for Nvidia's state-of-the-art, cost-effective, and blisteringly powerful computing chips and architecture. Nvidia’s bold undertaking to replace the outdated CPU-driven infrastructure with its advanced computing stack will be a decade-long endeavour. As chart 1 shows, Nvidia is still in the early days of this journey, with the company expected to achieve $29 billion of revenue from the data centre in 2024, just 10% of the overall potential.

Figure 1: Nvidia Datacentre Revenues (£bn)

Figure 1: Nvidia Datacentre Revenues (£bn)

Source: Nvidia and Liontrust (2023)

Why overhaul society’s high-level computing infrastructure? Firstly, Moore's law – the doubling in computing performance historically achieved every 18 months under the existing CPU-based infrastructure has recently flatlined, rendering the conventional CPU upgrade cycle inadequate for propelling growth. Secondly, the age of AI is finally and indisputably here, with adoption accelerating across the entire economy, and the huge computational requirements for AI model training necessitate much more powerful computing, indeed nothing less than a paradigm shift. Chart 2 illustrates the accelerating computational demands of AI models in recent years (expressed in petaFLOPS – a measure of the speed at which calculations are made). At this critical juncture, only Nvidia can meet them.

Figure 2: AI Training computational requirements

Figure 2: AI Training computational requirements

Source: Nvidia (2022)

Why not Intel or AMD? By their own admission, both of these giants are finding it more than challenging to surmount the barrier that Nvidia's software offering, CUDA, presents. Over the past decade, Huang has focused on building a robust software ecosystem that now boasts four million developers around the world. This enormous army of innovators create software libraries that enable Nvidia's cutting-edge chips (the latest being the H100 Hopper) to be harnessed in industries across the whole economy, from life sciences to aeronautics to customer service help desks. Indeed, given this ecosystem, Nvidia's leadership in supplying the tools for AI computing may by now be unassailable. This convergence of hardware and software has led Huang to liken it to the "iPhone moment"—a juncture where the supply of technology meets massive broad-based demand and creates an unanticipated revolution.

But Huang's vision extends further. The "Nvidia full stack platform with $1tn of opportunity" section in Nvidia's 2022 Investor Day revealed the $300 billion Data Centre total addressable market (TAM) that Nvidia is now executing on. Further growth drivers over the next decade include the Automotive sector ($300 billion), expected to begin to make a significant financial impact next year; the Gaming industry ($100 billion), NVIDIA’s heritage segment poised to rebound from a tough spell; and the emerging AI Enterprise Software opportunity ($150 billion), highlighted by alliances with Microsoft, Service Now, Adobe, and others. The Omniverse represents yet another long-term prospect to watch.

What we are witnessing today is the fruition of a decade's meticulous strategising, and it is just getting started. Nvidia has adeptly positioned itself to capitalise on these promising markets. With no rival on the horizon, it appears the goal is there for the taking.

Understand common financial words and terms See our glossary
KEY RISKS

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

Investment in funds managed by the Global Innovation (GI) team may involve foreign currencies and may be subject to fluctuations due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility.

DISCLAIMER

This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.

Storm Uru
Storm Uru
Storm is a lead fund manager of the Liontrust Global Innovation, Liontrust Global Dividend and Liontrust Global Technology funds. He has 12 years industry experience, including as a fund manager and trader and prior to Liontrust worked at Neptune Investment Management running global funds and covering the global industrials sector. He holds an BBS in finance and MBS in international business from Massey University, an MBA from Oxford University and is a CFA Charterholder. He represented New Zealand in rowing at the 2008 and 2012 Olympic Games, winning bronze in London in 2012.

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