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AI is More Than NVIDIA

NVIDIA recently briefly breached a $3 trillion market cap, adding an impressive $2 trillion in just one year—equivalent to the entire market cap of Amazon.

To the observer gazing in, one might imagine that large language models (LLMs) and NVIDIA Chips are the only play in artificial intelligence (AI). VettaFi is the index provider behind the ROBO Global Artificial Intelligence ETF (THNQ) and we disagree.

Given the competitive dynamics, we think very little value may accrue to the LLM creators despite it being an expensive endeavor. Rather, their efforts will ultimately see lots of value play out for the rest of the world.

We’re Still in the Early Innings for AI

These AI models are getting faster, less computationally heavy, and are becoming more specialized. If you’ve been following along, you know that multimodal AI is going to have a groundbreaking impact. This impact will be realized with a fully connected, integrated ecosystem of underlying technologies and diverse applications.

In our ROBO Global Artificial Intelligence Index, NVIDIA stands as the most expensive member. The stock recently had forward Enterprise Value/Sales of over 24x. This was over 3 times the weighted average of the index itself.

We Have Questions

  1. Will we see Titan Caps (over $10 trillion) emerge within the next decade?
  2. Who will be the other winners and losers in this evolving landscape? Open vs closed source? Platforms vs enablers? Hardware vs software?
  3. What is the full potential of AI?
  4. If AI fully realizes its potential, what sustainable percentage of Global GDP (currently ~$115 trillion) spend is plausible for the full stack?

No one can truthfully answer all these questions right now – as this space is moving too rapidly. We believe that value will accrue across a larger ecosystem that is starting to show acceleration and adoption as the pull-through from actual AI and real-world automation starts to appear. Not just the current training and early investment phase.

AI Industry is Fast Growing

As an example, the ROBO Global Artificial Intelligence Index experienced a weighted-average earnings growth of 50% in the first quarter. This stemmed from 11% sales growth. Looking to the full year, the 2024 consensus forecast estimates are at 18% earnings and 12% Sales growth with 93% of the constituents profitable.

We expect even stronger results for 2025. Then, investors should see profit from a higher percentage of companies in this emerging industry. Consensus estimates are for 28% earnings growth and 17% sales growth.

We believe that companies in the AI Infrastructure/Big Data space saw overreactions to largely positive earnings and outlooks. Datadog, MongoDB, and Snowflake mostly met investors’ high expectations with recent quarterly results in end markets that are expected to grow in-line with the rapidly growing AI space. Meanwhile, companies providing “picks and shovels” like Pure Storage have opportunities to scale further into training and inference. These areas are increasingly multi-modal. For example, not just text, but video, sound and other datapoints that require incredible fast and scalable storage options for AI applications. Others, like Ambarella, specialize in computer vision chips that help turn vision to AI applications.

Additionally, we expect M&A to also pick up as companies look to accelerate and protect competitive positioning. Just this past quarter:

  • Index member Darktrace was acquired by Thoma Bravo – expected to close in 2H 2024
  • Index member Hubspot is exploring an exit – with multiple rumored suitors. AI is more than one company. Indeed, there were 59 companies in THNQ at the end of May 2024 across 11 different subsectors.

For more news, information, and analysis, visit the Disruptive Technology Channel. 

VettaFi LLC (“VettaFi”) is the index provider for THNQ, for which it receives an index licensing fee. However, ROBO is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing or trading of THNQ.

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