No end in sight for the semiconductor revolution
January 30, 2019
American Funds video transcript: “How to approach investing in AI”
Doug Mehagian: Investing in an AI company is a little bit of a slippery thing, right? Are there companies out there that are, “This is an AI company and that's exclusively what they're focused on”? Is that the best way to get at the investment opportunity? Or is it the big tech players that we know very well, having the sort of resources to do a lot of research in this area?
Jared Franz: Yeah. It's definitely the case that the big players have an advantage, whether it's Amazon, Google and Microsoft, even Netflix. And lot of the big tech firms have come out already and said they want to be AI-first companies, right? And this was even two or three years ago. And they're hiring all the big AI scientists.
Doug Mehagian: A battle for talent, am I right?
Jared Franz: There’s a total talent scarcity. And even the folks that are … they call them “10X engineers,” and these engineers are getting basketball-type contracts — so, like 10 years, $5 million, what have you, per year — because they're so good at what they're doing. And a lot of these engineers — these top-rated engineers — are at these big firms like Google, Microsoft and Amazon. And these firms are going to push the frontier of AI, right? They're going to be the ones doing autonomous-driving machine learning with visualizations and things like that.
There are other firms that are doing AI, and that's one of the misconceptions of AI: that it's just these firms. There are these second-tier firms that are probably under the radar that, I think, are still going to be helpful if you wanted to invest in AI.
For example, there's a company called Trimble that essentially uses AI and IOT — internet of things — to put sensors on bulldozers so that when you get to a construction site, you know exactly which bulldozer you have, you know exactly which nail you have, you know exactly what beam you have. And so, when you get to that construction site, the old paradigm was that you got there and “Oh, we didn't have the hammer” — you didn't have the right hammer — or “We don't have the right bulldozer. I can't do the job for that day.” It gets very inefficient over time if that happens over and over. And now that you have these sensors, as a foreman or a project leader, you know exactly what you have on that site every day. And so, you see companies that are doing that.
Even big agriculture companies are starting to use AI to say, “OK, I'm going to fertilize this field.” But the current paradigm is that I kind of just do the whole field, right? But the whole field might not need the same level of fertilizer. And so, take a drone over the field, look at the plants, take pictures of the plants and say, “OK, that area over there, I need a little more fertilizer. Maybe I need different fertilizer in different treatment.” With very pinpoint accuracy, start customizing what they do.
And so, as investors, we should think about not only the big firms that are doing AI, but also industries that are leaders in AI. So, whether it's in agriculture, whether it's finance or whether it's in medicine, those companies that are the first to embrace AI, I think, are going to have some material advantages over those that don't.
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