Row 95142

Row ID: 95142 | Dataset Entry | Axioma AXP Content Repository

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This is my third quarterly post about chip makers. 6 months ago, SMH was around $160. 3 months ago, it was just under $200. Yesterday, it reached $244. I believe chips are still a great investment, even at this price, and I am continuing to buy more.

Along the way, many commenters have argued against chips, so this quarter I think I'd like to address the common themes I see in the comments, and explain why I think chips are still a great opportunity.

1: AI is a gimmick, or has very limited practical use, or is just a fancy auto-complete, and it won't drive growth in chips

This is probably the most common and upvoted argument I see. I have to guess that people making this argument either haven't experimented with AI themselves, or don't yet have a use for AI in their day to day lives.

For me, I use GitHub copilot every day. It is an incredible productivity boost. Developers that have used GitHub copilot understand how much value is there, and the rest of the world is just now catching up with things like Microsoft's recently announced Copilot+ (more on that in a minute). So if you want to argue that AI is a gimmick or fad, I'd ask that you also explain why you think millions of people will suddenly stop or decrease their use, rather than increase and expand their use of AI as it continues to get better.

2: We don't need more chips, soon there will be too much supply

Last time I saw this argument, I countered that even as data centers built up their AI capabilities, on-device demands were going to further strain supply. Since then, there have been several announcements about on-device chips, with Copilot+ (and the requirement of a chip that can do 40 TOPS) perhaps being the biggest and clearest example.

Very few devices today (laptops, phones, etc.) have enough processing power, or the right kind of processing power, to efficiently run a small LLM. Hence, the release of new chips like the M4 and the Qualcomm Snapdragon Elite, which were designed specifically to power small on-device LLMs. In my opinion, these chips are going to be a minimum system requirement going forward, and virtually every device will eventually be replaced with one that has one of these new chips.

3: It's a chip bubble, there's no fundamentals supporting the price

I'm a big believer in fundamental analysis, and if you look at chips through the lens of fundamental analysis, I see your point. NVDA is trading at over 60 P/E, and why would you buy that when there are other great companies trading at a much lower P/E.

The thing is, fundamental analysis is great for mature industries that are perhaps innovating on their operations, making them more efficient, but where there is not much actual product innovation. Fundamental analysis really breaks down when you have a rapidly evolving or completely novel product, a product so innovative it creates an all-new industry. For example, if you were thinking about investing in Amazon around 2010, fundamental analysis would have told you that the company is burning through cash, and their P/E ratio was in the high 60's, and that it wasn't a good value. Of course, the stock went on to grow by more than 20x since then. So much for fundamental analysis.

Fundamental analysis really falls short when it comes to new products that are so innovative they create their own industries. The companies creating these products tend to spend heavily on R&D, and the industry is not yet well-defined, so the company looks "inefficient" compared with mature companies operating in adjacent industries.

I think if it were say, three years ago, it would take a lot of imagination to see how AI is going to transform the chip industry. The tech wasn't there, and the value proposition wasn't clear. But today, I think it takes willful ignorance to stand there and say that chips are going to plateau and the bubble is about to pop. So I'm going to continue to scoop up SMH and I'll see you all in another 3 months to talk about how it went.

FieldValue
text This is my third quarterly post about chip makers. 6 months ago, SMH was around $160. 3 months ago, it was just under $200. Yesterday, it reached $244. I believe chips are still a great investment, even at this price, and I am continuing to buy more. Along the way, many commenters have argued against chips, so this quarter I think I'd like to address the common themes I see in the comments, and explain why I think chips are still a great opportunity. 1: AI is a gimmick, or has very limited pra…
label r/investing
dataType post
communityName r/investing
datetime 2024-05-25
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Raw Record

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  "text": "This is my third quarterly post about chip makers. 6 months ago, SMH was around $160. 3 months ago, it was just under $200. Yesterday, it reached $244. I believe chips are still a great investment, even at this price, and I am continuing to buy more.\n\nAlong the way, many commenters have argued against chips, so this quarter I think I'd like to address the common themes I see in the comments, and explain why I think chips are still a great opportunity.\n\n1: AI is a gimmick, or has very limited practical use, or is just a fancy auto-complete, and it won't drive growth in chips\n\nThis is probably the most common and upvoted argument I see. I have to guess that people making this argument either haven't experimented with AI themselves, or don't yet have a use for AI in their day to day lives.\n\nFor me, I use GitHub copilot every day. It is an incredible productivity boost. Developers that have used GitHub copilot understand how much value is there, and the rest of the world is just now catching up with things like Microsoft's recently announced Copilot+ (more on that in a minute). So if you want to argue that AI is a gimmick or fad, I'd ask that you also explain why you think millions of people will suddenly stop or decrease their use, rather than increase and expand their use of AI as it continues to get better.\n\n2: We don't need more chips, soon there will be too much supply\n\nLast time I saw this argument, I countered that even as data centers built up their AI capabilities, on-device demands were going to further strain supply. Since then, there have been several announcements about on-device chips, with Copilot+ (and the requirement of a chip that can do 40 TOPS) perhaps being the biggest and clearest example.\n\nVery few devices today (laptops, phones, etc.) have enough processing power, or the right kind of processing power, to efficiently run a small LLM. Hence, the release of new chips like the M4 and the Qualcomm Snapdragon Elite, which were designed specifically to power small on-device LLMs. In my opinion, these chips are going to be a minimum system requirement going forward, and virtually every device will eventually be replaced with one that has one of these new chips.\n\n3: It's a chip bubble, there's no fundamentals supporting the price\n\nI'm a big believer in fundamental analysis, and if you look at chips through the lens of fundamental analysis, I see your point. NVDA is trading at over 60 P/E, and why would you buy that when there are other great companies trading at a much lower P/E.\n\nThe thing is, fundamental analysis is great for mature industries that are perhaps innovating on their operations, making them more efficient, but where there is not much actual product innovation. Fundamental analysis really breaks down when you have a rapidly evolving or completely novel product, a product so innovative it creates an all-new industry. For example, if you were thinking about investing in Amazon around 2010, fundamental analysis would have told you that the company is burning through cash, and their P/E ratio was in the high 60's, and that it wasn't a good value. Of course, the stock went on to grow by more than 20x since then. So much for fundamental analysis.\n\nFundamental analysis really falls short when it comes to new products that are so innovative they create their own industries. The companies creating these products tend to spend heavily on R&D, and the industry is not yet well-defined, so the company looks \"inefficient\" compared with mature companies operating in adjacent industries.\n\nI think if it were say, three years ago, it would take a lot of imagination to see how AI is going to transform the chip industry. The tech wasn't there, and the value proposition wasn't clear. But today, I think it takes willful ignorance to stand there and say that chips are going to plateau and the bubble is about to pop. So I'm going to continue to scoop up SMH and I'll see you all in another 3 months to talk about how it went.",
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