In every industry there is the hot aspect or exciting part of the industry or the elements which make the press. They elements cause excitement for outsiders who may not understand the basics of the industry, but it allows conversations to be held among the general public. For those involved in the industry, they look to the nuts and bolts of the industry to see opportunity.

In an article by Karen Weise of the New York Times News Service, 2023 was the year of the AI chatbot and 2024 is the year of the AI plumbing.

Companies such as Microsoft, Meta, Amazon and Alphabet disclosed they had spent more than $32 billion on data centres and other capital expenditures (capex) in the first quarter of the year. All the companies have a desire to spend more on capex.

Most people have heard about the California gold rush (for example the San Franciso Football team is called the 49ers) and the people who made the biggest fortunes were not the miners but those that sold the shovels, tents and jeans (Levi). This means for this type of capex, look to the companies such as Nvidia, Oracle, Intel and Cisco systems. Companies which ensure the data centres work to the expectation the leaders in cloud-computing need.

Analysts expect the capex spending to continue for a few more years which is founded in the supply and demand. Microsoft said its generative AI could be bigger if the company had enough data centre supply to meet the demand.

For the computing infrastructure, the key is the chip inside it. Infrastructure demands generally fall into 2 buckets: one, there is the building the largest, cutting-edge models which some AI developers say could top $1 billion for each new round. The second part is inferencing or querying the models to actually use them.

Start with the hot companies in the media, but more often than not, do your homework to find out which companies are the suppliers so the hot companies can do what they do best.

Linking to dividend paying stocks, it is good to have the hot companies in your portfolio but as an dividend investor you want to determine which supplier companies are consistently profitable and can pay a dividend. At some point hot companies cool off and the price will decline, however supplier companies tend not to rise as fast or fall, but be able to year and year out make profits to pay dividends. In the middle and long-term horizon, they are often the hot companies in your portfolio.

There are more questions than answers, till the next time – to raising questions.