While the market response to NVIDIA’s latest earnings report was a delayed one, we saw the premium microchip Mag7 stock push up the NASDAQ to fresh record highs again in early June.
Of course, in mid-2024, NVIDIA is no longer just a microchip company anymore – it’s the market embodiment of Artificial Intelligence (AI). In the minds of traders everywhere, uptown or at-home, the AI theme has become inseparable from the stock NVIDIA itself.
And if you need proof that association with AI alone is enough to drive serious returns on the stock market, consider this: NVIDIA has, as of Friday 7 June, overtaken iPhone maker Apple as the USA’s second most valuable company.
Now, NVIDIA trails only behind Microsoft.
And it’s worth remembering the Mag7 tech stocks are still largely the most important companies driving up the S&P 500 and the NASDAQ, given their combined value comes in at a somewhat incomprehensible US$15 trillion.
That’s half the size of all remaining 493 companies on the S&P 500 index.
Big Tech and the 21st Century
Such concentrations of value (and power) among such a small cohort of companies has never been seen like this before. Where once the US was run by oil giants, it’s now run by tech giants.
The introduction of the household computer in the mid-1980’s was the first major revolutionary element behind this dynamic.
After that, it was a scramble to get mobile phones web-connected, and once that became normalised, the touchscreen prevailed as the most user-friendly interface.
In the space of around 30 years, the structure of financial power has permanently changed the world. The rapid spread of Large Language Models (LLMs) – pushed heavily by OpenAI – is just the latest step in an overarching tech story defining the 2020’s.
In the 1920’s, it was the middle class being able to afford refrigeration that changed the developed world – and a lot of people are banking on AI being of equal importance.
Time will tell. But in February of 2024 – which also feels like ancient history at this point, given how fast and how deep the AI hype has penetrated – Goldman Sachs released an analysis showing mention of the term AI was on the increase in US corporate earnings calls.
That trend has continued through the year, with seemingly every company jumping aboard the AI train.
Sometimes this can come across as convincing, and at other times it doesn’t.
Even Taco Bell has tried to frame itself as a company with exposure to the AI thematic. And to be fair to Taco Bell, it was actually an early mover in this space. It’s been talking about AI since before COVID.
Consider also that NVIDIA’s stellar performance has helped push up the entire basket of stocks contained in an ETF that exclusively deals with microchips – VanEck’s semiconductor ETF (semiconductors and microchips are, for all purposes, the same thing.)
As of the time of writing, that ETF basket has produced +77.4% returns over the last year. This article isn’t intended to be an ad for VanEck, but those returns do indicate a broad market enthusiasm for AI exposure.
AI down under
And so what about AI and the ASX?
Through the year, there’s been no shortage of companies spruiking exposure to the AI theme like their counterparts to the US.
But unlike the US markets, where you mention “AI” and the names “NVIDIA” and “Microsoft” come to mind, the bourse down under is less teeming with ripe fruit.
Data centre giant NextDC (ASX:NXT) is the largest, most well-known, and likely most obvious stock in the Australian AI space.
The company operates 13 data centres across Australia, NZ, Malaysia, and Japan, with that number to grow further.
NextDC has teamed up with Microsoft in the past to bring data centre infrastructure to remote parts of Australia, including the engine room of the national economy – WA’s Pilbara region.
But its fundamental leverage in the AI space is that NextDC has the computing power needed to run the power-hungry Large Language Models (LLMs) which have come to form our understanding of what AI actually is – even if we are really just anthropomorphising some very high quality chatbots.
Defining what ‘AI’ actually is
Whether or not we’re overestimating how powerful LLM products really are is a matter of ongoing debate (though it wasn’t enough to stop NextDC from redesigning a webpage describing itself as an “AI-Ready” company.)
While the “core” AI stocks driving the market – most of them within the Mag7 cohort – are all in the US, Australia isn’t unfamiliar with the tech space. After all, we’re the country that invented wi-fi.
Global law firm Dentons this year wrote that Australia is still figuring out what industries AI poses the most risk to users, with potential consequences of such risks equally vague.
In other words: it’s early days, and nobody really knows where the AI thematic will go from here, at least in the Australian context.
Research from UNSW in early 2024 described Australians as “concerned about AI.” The Australian government has already released a report the result of public consultation about the ‘responsible use’ of AI.
(Notably, nearly 80% of respondents were from business and other entities, with members of the public making up the rest.)
Australia no stranger to AI
Australians are well familiar with AI, and according to many surveys, most of us have played around with an LLM at least once.
It’s in our homes, and it’s now on our phones – or soon it will be, thanks to a deal between OpenAI and Apple which will see the ChatGPT app pre-installed onto iPhones.
But for the average at-home investor, NextDC could very well be too expensive a stock. What other companies are in the AI space in Australia?
Most of the companies on this list are not ‘artificial intelligence companies’ per se, but instead seek to leverage software capable of automating data analysis and list-sorting to enhance operations and automate wherever possible, thus meaning less CapEx, and better returns for shareholders (all cards in order.)
But this is equally true of many US companies turning to AI, and so the distinction bears little relevance to thematic investors.
AI on the ASX: 5 stocks to watch
Stock price information correct as at lunchtime on Tuesday June 11.
Shekel Brainweigh (SBW)
- Stock price: 5cps
- Market cap: $10.5M
- 1Y returns: -28.57%
- YTD returns: -37.50%
Shekel Brainweigh (ASX:SBW) is an ASX-listed company developing a package of hardware and supporting software to automate the bricks and mortar shopping experience.
SBW envisions a world without the burden of needing to pay expensive labour costs in stores which could be remotely operated – and to this end, loss (theft) prevention is a staple value proposition behind the company’s tech.
AI comes into it through the lens of automated data analysis. In other words, Shekel Brainweigh’s tech can be installed into trolleys and shelves that detect differences in weight to ascertain what product was bought and how many units.
This way, users would not be able to put one item in a trolley and then scan it through as something else. Many popular anecdotes talk about putting through expensive items as ‘brown onions’ – and it’s these sorts of practices Shekel Brainweigh is using AI to help prevent.
Ai-Media Technologies (AIM)
- Stock price: 31cps
- Market cap: $64.7M
- 1Y returns: +6.90%
- YTD returns: -10.14%
Ai-Media Technologies (ASX:AIM) is leveraging one of the more impressive capabilities of LLMs like ChatGPT as seen in the current era of the AI Boom – translation capability.
Among the holy grail products AI could produce, a translation app that allows two speakers with different language to converse in real-time is definitely among the most shining examples.
Ai-Media Tech is also developing AI that can automatically caption videos. While this software already exists in an established state on platforms like YouTube, the Australian market specifically has lacked specialists domiciled onshore.
The company also has an ESG focus – it was co-founded in 2003 by a member of the deaf community. The company intends to boost media accessibility, as well as exploit AI.
Unith Limited (UNT)
- Stock price: 1.5cps
- Market cap: $17.1M
- 1Y returns: -54.12%
- YTD returns: -32.28%
Unith Limited (ASX:UNT) is another company developing AI in the flavour of LLM ‘chatbots.’
Unith’s unique proposition to the market is that it can sell hyper-realistic 3D ‘digital human’ avatars to companies for use on their own second-party websites, where users can interact with the human-like LLMs to inquire about anything from sales prices to nearby hospitals.
The company is also developing an application that lets a user talk to the avatars, verbally, through their phone or laptop.
Once refined to satisfaction, the digital humans can respond in real-time to user concerns and questions without needing to actually pay the labour costs of staffers to do so.
Leveraging previous tech thematics, Unith operates on a SaaS basis, providing regular revenues.
NextDC Limited (NXT)
- Stock price: $17.55/sh
- Market cap: $10.5B
- 1Y returns: +46.12%
- YTD returns: +29.31%
NextDC Limited (ASX:NXT), already well covered in this article and one of the biggest tech players on the ASX that isn’t Megaport (ASX:MP1), is one of Australia’s most recognisable ASX-listed brands.
This is because of their architecturally eye-grabbing data centres spotted around each Australian capital. But the company is also well-known for another reason – its exposure to the AI scene.
Notably, NextDC was one Australian stock recently backed by Macquarie as boasting a bull case for exposure to AI growth in the coming years.
NextDC, a data centre giant, has the hardware and processing power needed to host AI products like LLMs and other high-powered software packages. Think about the requirements of a supercomputer – that’s the scale NextDC can handle.
BlinkLab Limited (BB1)
- Stock price: 24cps
- Market cap: $13.7M
- 1Y returns: +20%
- YTD returns: +20%
The final company on this list, BlinkLab (ASX:BB1) is a company leveraging AI where possible in the development of software capable of using a mobile phone to track user eye movements.
Hard scientific evidence that eye movement behaviours can reliably predict and detect mental health conditions – particularly when it comes to autism in children.
BlinkLab’s journey through the AI thematic is an interesting one, given its brandishing fairly recent science as its main value proposition in the diagnosis of a condition where rates are on the rise.
Of course, this is also what makes it a value proposition in the first place. BlinkLab’s usage of AI will hinge on its ability to gear software to automate the analysis of large sets of data – otherwise known as the ‘Big Data’ thematic of yesteryear.
In many ways, the current AI boom is an extension of that same big data theme.
After all, what is a LLM?