GenAI infrastructure drives next innovation wave: Pengana Capital

While market data has suggested that it is still in the “early innings” for generative artificial intelligence (genAI) infrastructure, a global investment manager has hailed it as the next opportunity for investors to capitalise on the innovation boom.

Bradley Amoils, Managing Director and Portfolio Manager of US-based Axiom Investors, which manages the Pengana Axiom International Fund, noted a key example of a “nascent” opportunity for investors to position their portfolio with “high-quality companies aligned to AI’s rapid adoption” is AI-enabled servers.

“A snapshot of the global server environment shows that this theme is very nascent. For example, less than 2% of the 12 million servers sold in 2023 were AI enabled,” Amoils said.

“Nvidia is expected to sell around 450,000 AI-enabled servers in 2024, but this is a small fraction of the 12 million servers which were sold just last year.

“If we look further ahead there are suggestions AI enabled servers might account for 5.3% of servers sold in 2026, which would still fall well short of demand, and suggests we’re only at the beginning.”

Amoils also said by investing in genAI, investors would gain exposure to the ‘Four D’s’, the key trends driving global economic growth, including Demographics, Debt, Deglobalisation, and Disruptive innovation. According to the portfolio manager, Nvidia’s forecast revenues continued to stand out, with other attractive stocks venturing out from the ‘shadows’ including TSMC and Vertiv.

“How high Nvidia can go is tough to say, and we don’t like to forecast these things, but if we look at the forward revenues for the next few quarters there is no sign of this trend slowing down,” he said.

“If a chip goes into the foundry this quarter it creates revenue the next quarter, because it takes about 3-4 months to make a chip.

“A lot gets written about Nvidia’s share price, but the earnings, forward guidance and TSMC monthly sales data have been there to back it up.

“Companies [like TSMC and Vertiv] are providing interesting data, and show the AI theme extends from mega cap to small cap positions.

“TSMC is a foundry partner with Nvidia and Apple is TSMC’s largest customer. AI-driven semi-conductor demand is insatiable, which is strongly benefitting TSMC.

“Vertiv partners with server manufacturers to cool AI chips, which provide a disproportionate amount of power and heat.”