Objective

Create a basket of international equities to generate selection alpha and outperform both the broader equity market, and other AI focused baskets, focused on capturing the AI/ML & accelerated computing paradigm shift utilizing a valuation sensitive selection process and a triphasic framework for the technological paradigm of artificial intelligence, accelerated computing and robotics/automation.

Reasoning

Existing baskets focus on predicting the winners and view data centers as simply a means to an end, while comments from the most informed among AI pioneers show – data centers will be at the heart of any AI boom, they are the only certainty to what AI/ML will look like in the future, they are the “picks and shovels” of the paradigm shift. Additionally, due to potential macro risks, they have retained relatively low multiples on fears of overearning. This provides a unique opportunity, although the window to take advantage of the rerating is rapidly closing.

Methodology

Due to the recent and significant outperformance of large cap technology, the forward expected returns for some of the most obvious beneficiaries are lower despite their potential to accrue gains associated with artificial intelligence being only incrementally more in the most extreme cases (such as Nvidia). Therefore, utilizing a framework of the most likely path and contributors for the progression of the AI theme and a model for data center capex spending as the theme ramps, we form a universe of global equities and pare it back for redundancy, supply chains, percent of potential AI/ML/deep learning associated revenue and other advantages/disadvantages and overweight those companies presenting a margin of safety or poised to significantly outperform. I will list the companies I am currently overweight in my own portfolios and will follow up on my positioning as it relates to developments for these companies.