Update on... Echiquier Artificial Intelligence | September 2024
Christophe Pouchoy Fund Manager for Echiquier Artificial Intelligence, La Financière de l’Echiquier (LFDE)
LFDE’s Tech team, made up of four experts and managing more than €1.6 billion in assets,[1] is implementing a strategy aimed at capturing the opportunities stemming from the accelerating adoption of artificial intelligence (AI). Already visible in the semiconductor and cloud hosting industries, the monetisation of AI capabilities is now poised to spread to the rest of the economy. The AI market could reach $1810 billion by 2030, a 13-fold increase since 2022.[2] Your Echiquier Artificial Intelligence fund, which is well positioned to take advantage of this over the long term, has already delivered a significant return since the start of the year.
Portfolio activity
Economic outlook
The fund has benefited from massive investment in semiconductors in recent months, which has boosted the sector’s stock market performance. Current earnings estimates and valuations reflect this growth. We have therefore taken profits on certain stocks in 2024, including Nvidia. The fund is currently largely invested in the software segment, which is expected to be the second wave of AI monetisation. Cloud service providers, including Microsoft, have already benefited, and other publishers (application software, internet services, cybersecurity) also cited an increasing contribution from AI in their quarterly reporting this summer. In particular, we have added MongoDB to our portfolio, strengthened our position in Adobe, and sold Unity Software and ZoomInfo due to poor visibility over their outlooks. We are positioning ourselves for the growth of Edge AI and holding on to more defensive stocks to guard against a deterioration in the macroeconomic environment.
Fundamentals
Microsoft’s presentation of the ChatGPT language model in January 2023 highlighted the potential of this technology and encouraged the business community to invest in the infrastructure needed to develop it. Companies see AI capabilities as a means of increasing the productivity of their employees, but also as a tool for marketing new, high value-added products and services. Given the uncertainties surrounding the profitability of the massive investments being made in AI, we focus on selecting the stocks most likely to monetise AI – and to do so quickly.
Investment strategy
In a universe currently made up of more than 500 stocks identified by our semantic algorithms, our strategy draws on our sector expertise to identify the best investment opportunities in the AI ecosystem through fundamental financial and non-financial analysis. Among the players corresponding to our four target profiles – AI Vendors, Users, AI Infrastructure Providers, Facilitators – we prefer those for which this universal technology will have the greatest amplifying effect. We have developed internal tools to identify new opportunities and compare their growth prospects and valuations. Our conviction-based portfolio comprises around 30 global stocks that we believe will enable us to capture the value created by this revolution over the long term.