ARTIFICIAL INTELLIGENCE: New computer age!

Everyone seems to agree that Artificial Intelligence (AI) has ushered in a new IT era... even if there are still some hurdles to jump. Enthusiasm for AI has risen markedly in 2023, as have the price levels of many of the stocks involved. The concepts are not new, but they are now intensely coming to light and will shape the next years or decades! For many investors, the question has been raised for some time - including us - whether and how to participate in this "hype". Which stocks or at best ETFs come into question? When should one "get in" or "jump on"? In our opinion, however, one should not frantically search for any start-ups and hope to bet on the most profitable horse. Rather, the goal must be to evaluate more established companies that will enable AI growth. First and foremost, we see the stocks of chipmakers or potential cloud computing pros at the forefront; the provision of infrastructure and computing power arguably holds the most promise for profits, as evidenced by the stock of the much-hyped NVIDIA, among others. The second tier is made up of companies from all industries that can optimize their potential through the use of AI. But let's stay with the actively involved IT corporations... and unfortunately there are quite a few of them. How to make the selection? Does one "flush" capital into AMD, INTEL, TAIWAN SEMICONDUCTER, IBM, MICROSOFT... or ARISTA NETWORKS, ZEBRA, SUPER MICRO COMPUTER, THE TRADE DESK, CROWDSTRIKE, BAIDU, EXTREME NETWORKS? Or do you choose an ETF, e.g. the XTRACKERS AI AND BIG DATA ETF, because of the variety (above only a small selection)?

We have our favorites, which we locate primarily in the USA. These include, in order of prio, AMD, MICROSOFT, ARISTA NETWORKS and IBM. And it's a purely routine statistical exercise to identify companies that have performed better than average in the past, and are most likely to continue to grow in the future. However, there are two catches to this simple notion: the first is that stocks with good past results and apparently good prospects trade at correspondingly high prices. The investor and/or the WI might be right in their judgment of the prospects, but still not do very well because they simply paid too much for the expected success. The second catch: the assessment of future (price) development could be wrong, because unusually fast growth cannot continue forever... even if one gets this impression with NVIDIA, for example. If a company already has a brilliant expansion behind it, the growth in size alone makes it difficult to repeat what has been achieved. At some point, the growth curve flattens out, and not infrequently it then turns downward. On the other hand, the companies mentioned are not only dependent on AI, but are well positioned per se. Considering the partly very high (too high?) valuations, we estimate the risk of a "hard" correction to be greater in the short-term optics. And the pie is getting smaller due to increasing competition. And the "recession story" is not off the table yet either. We are watching the AI topic closely and are ready to buy in case of price setbacks!