Rudi’s View: GenAi, The Super-Megatrend, Part 2

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Jun 20 2024

Part Two in a broad assessment of the new industrial revolution that is now upon us, GenAi.

Part One:

By Rudi Filapek-Vandyck, Editor

Next phase: more beneficiaries

Apart from Nvidia, which has managed to position itself at the heart of the GenAi revolution (think about it), the second largest beneficiary at this point in time has to be Microsoft, itself one of the earliest investors in the technology. Contrary to most companies, Microsoft has a vast network of sticky customers who purchase and renew subscriptions to its suite of software programs around the globe.

Microsoft has thus already been able to start monetising GenAi through its regular channels. Things move fast in 2024 and competing manufacturers of PCs, laptops and mobile devices have equally launched their own GenAi products, including Acer, HP, Lenovo, and Apple.

Apple and Google (Alphabet) have their own global networks and are equally eager to monetise their own Ai investments. With GenAi promising a much improved user experience versus Google search, the latter behemoth will be going through a fundamental transformation.

How quickly will we all jump on the bandwagon and start upgrading and renewing our current hardwares?

That question is not easy to answer at a time when many a household budget is under pressure, and the same squeeze applies to small and medium-sized businesses in many developed and developing economies.

But analysts in Australia have been reporting Wesfarmers ((WES)) is optimistic about the boost GenAi products are poised to deliver for Officeworks. Dicker Data ((DDR)) too expressed an oversized dose of optimism in its most recent share market update.

Macquarie analysts already calculated if GenAi shortens the average renewal cycle for computers by one year (to five from an average six), the benefit for the industry will be significant. On the broker's calculations, shortening the replacement cycle by one year, and assuming prices go up by 15%, would result in a 34% increase for the PC market locally in 2025.

It remains to be seen if and when exactly such benefits materialise, but if we, as a society, are going to migrate towards GenAi, those who sell the products will benefit.

In Australia, the obvious beneficiaries will be JB Hi-Fi ((JBH)) and Harvey Norman ((HVN)), for sales to consumers, and Officeworks, Dicker Data and Data#3 ((DTL)) for sales to small and larger businesses.

The big unknown: corporate execution

GenAi is promising the next modern day industrial revolution, but ultimately its success will come down to execution. The jury is still out on whether that promise will be delivered, when exactly and what its shape and practical outcome might be exactly.

The arrival of the Internet, and later the smart mobile, has had a tremendous impact on corporations and society, but no-one could anticipate the many new businesses that have been established on the back of these technological breakthroughs, or predict which businesses would succeed or fail.

For each sector specifically there are many moving pieces in play, which makes forecasting extremely difficult at this early stage. In some sectors, benefits might be achieved eventually but subsequently competed away for a no net advantage to the business, irrespective of the effort and investments made.

Note how the latest initiative by the Albanese government intends to force local banks into more transparency for financial products, at the same time as it will be easier for customers to switch to a competitor.

All of this also points to another strong motivation for businesses to join the trend: the competition cannot be allowed to obtain a GenAi advantage.

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