INVESTMENT FOCUS – JULY 2024 – Chesapeake Asset Management
EXCERPTS FROM THE CLIENT QUARTERLY LETTER
Things are changing. One reason that I like the investment world is that there are often new technologies, actual disruptors and new investment products to challenge our thinking. At the same time, we have to be mindful that there are cycles and must be respectful that too much exuberance can sometimes bite.
Right now, “Artificial Intelligence” (AI) has huge potential. It also has the ability to propel the energy transformation already taking place based on significant increase in demand of electricity required to power the machines at data centers.
The S&P 500 index performance, which is now controlled by the small group of stocks focused on AI, carried over the momentum from the prior period as AI themes continued to dominate discussions and decisions among investors.
Many look back at the Dot-Com frenzy of 2000 in comparison to now. While this period is similar in the market’s focus on a concentrated number of stocks, there are important differences. Companies focused on AI today (Microsoft, Nvidia, Google to name a few) are making money and tons of it. Many are being operated by the same manager, Founder/Leader. These companies have little debt. During the Dot-Com phase, companies were operating at losses and held lots of debt.
For sure, there will be winners and losers as AI evolves its focus from hardware to software and implementation. Also, because the new technology advances are so different, legacy software may become obsolete.
Other changes are taking place in the markets. Private lenders are taking over the role of banks. The emergence of the online healthcare industry is increasing as it provides consultation and prescription services. Related opportunities to more AI can be found among the utility and infrastructure industries.
In managing your income portfolio, we will continue to focus on quality income. This is accomplished by taking little credit and duration risks.
Linda A. Mundy