No need to look for needles, there's value across the entire AI stack

Chris Conway: Hello, and welcome to Livewire Markets. My name is Chris Conway. On today's episode of The Pitch, we are talking about how you can access the AI thematic. To do that, I am joined by investment strategist Billy Leung from GlobalX. Billy, welcome to Livewire Markets.

Billy Leung: Thank you.

Chris Conway: Billy. We're here to talk about AI, and a lot of people think of AI just as large language models, that seems to get most of the attention, but there's so much more to the stack. Can you just walk people through the opportunity set?

Billy Leung: You're correct. I think just looking at it from my technology background, there's actually a lot of different areas where AI is impacting, and it actually applies to a lot of technological shifts as well. So whenever I look at innovative disruption, there's always a few things that converge, which people call layers, but I call sectors. So there's essentially three layers that need to converge to actually make the technological disruption successful.

1. The first layer is what people call the compute level, or what I call the hardware segment. So these are the companies developing the hardware, manufacturing the hardware, to actually enable or to support the development of this technology.
2. The second layer is the infrastructure layer, so this is what I call the enablers. These are the companies that are using the hardware to actually allow much faster or much better development of the technology. So these are the companies which I see as lowering the barriers of entry.
3. And then the third layer is the interface layer. These are what I call the adopters; the companies adopting and leveraging the new technology, the new hardware, to actually create a new service or to apply it to existing services and products to make it much more efficient.

So, the convergence of these three is what I see as a successful way for this technology to develop, and opens up for an investment opportunity as well.

Chris Conway: Billy, what are some of the key companies across those three layers that you were just talking about?

Billy Leung: For hardware, I think everyone knows Nvidia (NASDAQ: NVDA). So, Nvidia is the company that makes the GPU chips, which are the very powerful chips allowing AI training. But if you actually go deeper into hardware, there's different kinds of chips as well. For example, apart from the GPU chips, we also have memory chips. These are used also for training AI as well. So companies such as SK Hynix, Samsung, and, in the US, Micron (NASDAQ: MU) are the ones that are actually making these memory chips.

On the second layer, we have cloud computing. If you look at AI, data is the key. So cloud infrastructure is one that really promotes or really enables this development of artificial intelligence. So there we have companies such as Oracle (NASDAQ: ORCL), we have IBM (NASDAQ: IBM) creating this platform for data analytics, data training as well.

And finally, we have the adopters. So these are the household names we've been talking about, Meta (NASDAQ: META), Google (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), all applying artificial intelligence to improve the services and even potentially make new services.

Chris Conway: Billy, let's talk about where the rubber meets the road and the GlobalX AI product, GXAI. What's the methodology behind it, and what does it offer for investors?

Billy Leung: So the GXAI tracks the Indxx Artificial Intelligence & Big Data Index. The methodology behind this index is that it tries to expose investors to the artificial intelligence value chain. So it does this two ways.

First, it selects two categories of stocks. The first category are companies which are developing AI or using AI as a service. And the second category are companies that are developing the hardware to enhance artificial intelligence. Now, this goes into what we just talked about. We have got three layers where there are hardware, enablers, and adopters. And the interesting thing about the GXAI product is that the category one companies are capped at 3% in terms of weighting, and the hardware companies are capped at 1%, which allows us to have that breadth and that scope of companies and exposure in that fund.

Chris Conway: Billy, we've talked about the entire stack, or the value chain, as you refer to it. Why is it so important that investors have exposure to the entire stack rather than just one part?

Billy Leung: That's an interesting question. I think that applies to a lot of how people see technology. And I think one, not mistake, but one misunderstanding or misconception is that when analysts look at technology stocks or technology industry, they see it from a linear perspective. So they think it's like a gold mine. You have the machinery to mine the gold, you have the miners, you have the gold, you sell it, and that's it. But the difference with technology is that it's much more of a circular motion or loop motion, whereas you have the hardware producing the chips, allowing the cloud platforms to actually enable the development, and then we have the adopters. But the adopters would improve the services and demand better chips, and then so the chips have to improve, and so on, and so on. This is exactly what we're seeing now with Nvidia, making different levels of chips, providing different levels of services, and allowing much better artificial intelligence or machine learning.

Chris Conway: Billy, I love that analogy with the gold mine. That's great. Thanks for sitting down with Livewire.

Billy Leung: Thank you.

Chris Conway: If you enjoyed that episode of The Pitch as much as I did, make sure to give it a like, and don't forget to follow our YouTube channel because we're adding lots of great content every single week.

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The Global X Artificial Intelligence ETF (ASX: GXAI) invests in global companies involved in AI development, AI-as-a-service, provide AI compute power, or design and manufacture AI hardware.

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