AI will create ‘more losers than winners’ even as Nvidia soars

Nvidia is one of a handful of companies that will sustain this year’s rebound in US stocks even as the rapid advances in artificial intelligence “creates more losers than winners”, according to one of the biggest recent buyers of shares in the US chipmaker.

Silicon Valley-based Nvidia, whose tech powers AI applications including ChatGPT, last week became the first chipmaker to hit a $1tn valuation as investors stampeded into companies that are seen as the biggest beneficiaries from developments in AI.

“In Nvidia’s context, it [AI] is going to create some winners and losers . . . more losers than winners” as it disrupts business models across industries, said Rajiv Jain, founder and chief investment officer of GQG Partners.

“The most obvious winners at this point, besides Nvidia, will be the larger tech names, whether it’s Alphabet or Meta or these kinds of names,” he added. GQG Partners bought $2.3bn of Nvidia’s shares in the first quarter and has since added to its stake.

Shares in Nvidia have soared 170 per cent this year, adding $575bn to the group’s market capitalisation — a gain that only trails the $721bn and $654bn put on by Apple and Microsoft respectively.

The S&P 500 is up 9 per cent this year, extending a recovery that began in October.

Jain said that while many semiconductor companies are likely to benefit from high barriers to entry and robust demand for their chips, some software and IT services companies may end up “on the losing side” as AI automates parts of their businesses and “a lot of the basic stuff being done will be redundant”. 

But, just as in the dotcom boom, he cautioned “it’s hard to predict who’s going to be the winner here except very, very few . . . nobody could have predicted Amazon is going to be the winner, unless you were betting on Jeff Bezos. It’s easy to say I did that but there were hundreds of start-ups in ecommerce, who knew? And not to mention the company itself morphed dramatically over the years.”

Jain launched Florida-based GQG seven years ago. Inflows of $5bn in the first quarter helped propel its assets to around $100bn for the first time.

The firm was thrust into the spotlight this year when it ploughed $1.9bn into Indian conglomerate Adani Group after it was hit by a US short seller’s attack that wiped as much as $145bn from its market value. It has since increased its stake in Adani Group companies.

The “trigger” for rebuilding his stake in Nvidia was the arrival of artificial intelligence chatbot ChatGPT, which Jain believes will herald a “step function in earnings” for Nvidia. GQG first bought into Nvidia in 2017 but sold out 18 months ago because of concerns over its lofty valuation.

The launch last November of ChatGPT created a surge in demand for Nvidia’s H100 chips, which the group’s chief executive Jensen Huang described as “the world’s first computer [chip] designed for generative AI”— artificial intelligence systems that can quickly create humanlike text, images and content.

Last month Nvidia delivered sales forecasts that outstripped Wall Street’s expectations by more than 50 per cent.

Jain pointed to a divergence within the technology sector, where large profitable technology companies — which make up vast swathes of stock market indices — are decoupling from loss-making ones and were swept higher during the final leg of a bull market fuelled by pandemic stimulus.

“There was a lot of delusional thinking in 2021, there’s fewer delusionists now,” he said. “Quality growth within the tech side is back in the frame.”

The chief obstacle for Nvidia is whether it can meet demand, said Jain. “Companies miss earnings all the time because they can’t meet demand,” he said. “I think that’s the biggest problem that Nvidia is facing at this point.”