Market Minute
April 2024 – By Scott Rosenquist, CFA®
Artificial intelligence was the dominant theme for investors and the financial markets over the past year. It led equity markets higher with technology companies benefitting from the build-out of data centers and the necessary infrastructure to run AI algorithms. Some investors are asking themselves, have I seen this before? referring to the late 90’s dot com bust. One key ingredient missing now is a rush of companies going public to take advantage of the current market environment. At least not yet. I do find it interesting that most private AI-focused companies are partnering with larger public companies (with deep pockets) rather than going public. These companies can receive funding without going through the hurdles of a public offering. AI has gained a lot of traction from my previous post about this topic.
The capital-intensive nature of artificial intelligence and the sheer computing power required has benefitted the largest companies that have the financial strength for such an investment and the companies that supply the components. Data center demand is incredibly strong as companies look to secure power and cooling arrangements for these buildings. Outside of Washington D.C., in Northern Virginia there is an area with so many data centers, it is referred to as Data Center Alley. The power necessary to run these data centers is immense, so much so that Amazon bought a data center site directly next to a nuclear power plant. The power of these chips running AI has also caught the government’s attention and now have put restrictions on which chips can be exported in terms of computing power. All eyes are on this technology build-out, including the supply chains required to make it happen.
The bigger question is what will come of all this computing power? What is the most beneficial use for artificial intelligence? The bigger story may be the applications that run on all this immense computing power and how it will benefit the economy as a whole. Healthcare and drug discovery seem to be one of the larger opportunities along with cyber security and overall efficiencies across several industries as AI is embedded more broadly. Economists have made predictions on what the productivity gains may be. That is difficult to predict with any precision, and it could take years for it to play out.
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