Tech and AI Investing Trends: A Stock Picker’s Take

Tony, earlier this summer, you hosted your 11th annual tech tour where you and 36 other BlackRock colleagues took a bus more than 300 miles over five days to meet with leaders of over nearly 30 technology companies in San Francisco and Silicon Valley. Not surprisingly, AI was a topic that you talked about a lot. This is a space and a topic that has been changing quickly over the I'm curious, how has the conversation evolved over that past year? As you mentioned, this is the 11th year we have done this. The first nine years, there was some talk of AI, but generally very little, very company-specific. Last year, 2023, and this year, AI has dominated the conversation. In fact, it was the topic of every single meeting. There's been a huge pivot, and this has dominated the strategies of every single company that we visited on this tour, basically across the entirety of tech. What's changed is in the last 12 months is that that intensity has come even clearer into focus, and the strategies are becoming more apparent and more definitive. The commitment and focus is higher than it was even last year, which was really the first year we really saw AI come to its own. Tony, it turns out we were able to join you on this tour. As you were meeting with different industry leaders and company leaders, we actually were able to get some commentary from them. First, we'll hear from Arsalan Tavakoli-Shiraji, co-founder of Databricks, who has been an AI believer since his company was 10 years ago. He also is struck by the recent pace of change. The pace of change has been incredible. If you talk about, let's say, a year ago, 18 months ago, nobody really was even talking about AI. Now all we talk about is, what are GPUs going to be used for? What are all the different systems? How do I harness AI? It's been a while since I've seen something that has so much excitement from industry, yet still is so nascent that it's in the research phase. Tony, when it comes to CapEx spending or capital expenditures, essentially what corporations are spending on that new computing infrastructure, I think that's the term that you use. Google has said that the risk of under-investing is far greater than the risk of over-investing. A lot of the big tech companies have committed to massive amounts of capital expenditures towards AI, yet it may still not be enough, as Hock Tan, President and CEO of Broadcom, shared. The amount of money that we involve, we haven't even begun to quantify. One could imagine the level of spending required both on computing engines, on software models, on infrastructure and power in particular, could possibly be larger than what we all are thinking at this point. That's why I say we're probably underestimating the amount of dollars in CapEx, an investment we would need to make in order to reach that aspiration goal of what we call AGI, Convergence in Artificial Intelligence. Tony, are you worried at all that the capital expenditures on AI might not deliver the return on investment that people think it will? In a singular answer, no. However, Wall Street and investors are obviously asking that question now about ROI of AI. I think the issue is the two- and ten-year question. Maybe in the next two years, we are overestimating the impact of AI, but in the ten years, we might be underestimating the impact of AI. If you are one of these big three companies, if you do not continue to invest, you run the risk of falling behind, which then impacts your current core business. We heard similar excitement from Rodrigo Liang, co-founder and CEO of SambaNova. You look at all these innovations that are happening across the world, whether that's accuracy, whether that's multimodality, whether that's performance and speed, whether that's efficiency, you see this innovation across all of these different ways that the models are operating, and I think you're going to only see it accelerate. It's a tremendous time for innovation. It's a tremendous time for technologists, and we're really excited to be in the middle. There are, of course, a number of companies who are innovating by supporting the AI revolution, not by developing large language models, but instead things like quantum computing to assist with faster AI computations. We heard from Fariba Dinesh. She's COO of SciQuantum, a company building the world's first useful quantum computer, and asked her about the potential for quantum computing. I think the most opportunity for quantum computing to contribute to humanity is climate and drug development, because chemistry is quite complex and chemical problems are not something we can simulate today, and computing has contributed to that very little over the years. With quantum computing, there's enough compute power where you can actually simulate these very complex mechanisms that happen with bond energies, etc., etc. Quantum computing is uniquely good for quantum-type mechanisms, which, of course, chemistry is all about. Tony, speaking of quantum computing, which I know is a theme that you've been an early supporter of, what are the investment opportunities in this space? It feels like it's been getting less attention than straight AI-focused companies. Absolutely. Quantum computing represents a next generation of computing. The last 50 years we've been, and we currently are still, in the classical computing era. I would say these next five years is going to be absolutely incredible in classical computing driven by AI and what NVIDIA is spearheading and building these super clusters of supercomputing AI computing power. This is all classical computing. We are barreling toward AGI and these super nodes with this unimaginable computing. If you could have one company that breaks through, you could have an open AI-like moment for the quantum computing industry.