AI frenzy puts chips back onto the menu: Buy the tech behind revolution

We don’t know how ChatGPT’s artificial intelligence (AI) system will change our lives, despite the screeds written about this groundbreaking piece of software.

It can carry on a conversation, take an exam, write a report, write a rap song or a sonnet – and is also ‘uncannily good’ at the tasks.

Or so says Elon Musk, one of the founders of ChatGPT’s developer OpenAI, currently the hottest start-up in Silicon Valley.

But even Musk can only guess at the magnitude of the system’s potential impact on society, and how it could be deployed in areas such as improving productivity.

The publicity surrounding the threat of “generative” LLM (Large Learning Model) systems, such as ChatGPT, which use massive datasets to analyze and generate content, has clouded debate over the constructive role they could play.

In light of this, if you think ChatGPT could be good for your portfolio, a 19th century strategy could be the way to take advantage of this 21st century revolution.

The vendors of picks and shovels were those primarily enriched by the California gold rush in 1848. Similarly, investors in the massive numbers of semiconductor microchips needed for ChatGPT and other “generative” AI systems – such as Google’s Bard and Microsoft’s Bing – can be well positioned. Shares in technology giants were hit hard by higher interest rates in 2022. However, some of their share prices have been pushed up by the ChatGPT buzz, supporting the view that you should never bet against these companies for too long.

Buying their shares is a gamble, not only what’s in store for ChatGPT, but also what happens to interest rates. If you’re nervous but still want to own a stock in a very different future, check which stocks are owned by the funds in your portfolio.

American semiconductor behemoth Nvidia provides the powerful graphics processing units that dominate the AI ​​market. Nvidia shares, which are up 81% this year, are held by Polar Capital Global Technology Investment Trust, Sanlam Global Artificial Intelligence, Fundsmith and Scottish Mortgage (I’m an investor in the latter two).

Shares in ASML, the Dutch giant that makes the lithography machines essential to semiconductor manufacturing, are up 22 percent since January. The share is one of the largest holdings in Fidelity European. The share price of Alphabet, the Google group, is up 22 percent this year. The Bard generative system has its critics. But upgrades have been promised, and the group has designed a Tensor Processing Unit chip, which it claims is faster than the Nvidia equivalent.

Microsoft — whose shares are up 21 percent this year — plans to integrate OpenAI’s technology into all of its products.

Astutely, Microsoft acquired a $13 billion stake in Open AI in 2019.

If some of the AI ​​ambitions of these two titans materialize, investors with money in trusts like Allianz Technology, F&C and Scottish American could be satisfied. I have a small amount of money in F&C, but note with interest that Allianz Technology’s share price is 14 percent lower than the net worth of its assets.

The optimism about the outlook for ChatGPT and its successors contrasts with the uncertainty surrounding the world’s number one semiconductor name, the Taiwan Semiconductor Manufacturing Company (TSMC).

The Apple supplier is at the center of the disagreements between the US and China, which claims independent Taiwan as its own.

These geopolitical tensions, which have recently increased, were one of the reasons Warren Buffett gave this week for his decision to sell his Berkshire Hathaway fund’s stack of TSMC shares in February.

News of a slowdown in sales at TSMC’s Taiwanese facilities hinted at a longer-than-usual slowdown in the chip cycle.

However, TSMC’s 17 percent rise in shares this year suggests that this powerful company can handle such challenges. Nvidia, one of TSMC’s largest customers, promises to use the Arizona factories to “manufacture” its chips.

TSMC is the largest holding in the Temple Emerging Markets trust, better known as Temit.

Chetan Sehgal, the trust’s co-administrator, claims that businesses of all types will be clamoring for chips. He says: “AI is a growth engine for the semiconductor industry. The demand for ever more powerful semiconductors could increase dramatically in the coming years as companies outside the technology industry invest in customized LLMs for their own use.”

Slavely following fashion when building a portfolio is not a good idea. But acknowledging trends makes sense – and ChatGPT is part of a megatrend, troubling though it may be.