The AI Phenomenon: Lessons in risk management and investor psychology
The Broader AI Hardware Ecosystem
In times of rapid technological advancement, risk management becomes more critical than ever. The AI sector now spans multiple GICS categories, blurring traditional industry lines. Our proprietary research has allowed us to map these risks across various sub-sectors, now representing 22% of the MSCI World Index. There are three high level AI sectors, being Hardware, Compute and Direct Product. Within these we have further categorised 11 AI sub-sectors.
NVIDIA's stellar performance has been backed by significant earnings upgrades. With these upgrades have also come higher expectations. At Firetrail, we maintain a 3–5-year view on earnings and valuation, a timeframe we believe all equity investors should have as a minimum.
In this context, the price you pay becomes paramount. Even the most promising growth story can turn into a poor investment if acquired at an excessive valuation. Our disciplined approach to valuation has sometimes led us to make unpopular decisions in the short term, but it has served us well over full market cycles.
The AI story serves as a microcosm of broader market dynamics. It highlights the importance of maintaining conviction, understanding sector-wide trends, managing risk holistically, and staying disciplined on valuation. As we navigate the current market cycle, these principles will continue to guide our investment approach, helping us to identify opportunities and manage risks in an ever-changing landscape.
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Anthony Doyle is Head of Investment Strategy for the Firetrail S3 Global Opportunities Fund. His primary responsibilities include fundamental idea generation, portfolio analysis, and economic insights including currency and macroeconomic risk...
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Anthony Doyle is Head of Investment Strategy for the Firetrail S3 Global Opportunities Fund. His primary responsibilities include fundamental idea generation, portfolio analysis, and economic insights including currency and macroeconomic risk...