If you think about AI, the first company you think of is the chipmaker Nvidia, but it takes software and hardware to power AI. Some of the names in software include Alphabet (Google), Microsoft and Amazon. some of the names in hardware include IBM, Cisco and a host of others. What is normal is software companies once successful, while tend to continue to do well. Hardware companies tend to have more ups and downs because it is harder to stay up with trends.

In an article written by Irene Galea, Cisco Systems Inc, CEO Chuck Robbins says the company missed a major opportunity to expand 10 years ago as cloud computing took off. But he insists it will not make that mistake again with artificial intelligence or AI.

The networking equipment maker was a pioneer during the early expansion of the internet, but was late to invest in infrastructure underpinning the cloud. CEO Robbins said Cisco is well equipped to be successful with AI.

AI products currently represents a small fraction of the company’s total business. Cisco is investing in what Mr. Robbins foresees will be a decade-long run with AI. The company has built a pipeline of about $3 billion of orders for AI products.

To do even more in AI, Cisco bought Splunk for $28 billion. The company is a cybersecurity analytics platform that uses generative AI. CEO Robbins believes Splunk will be accretive to the company’s cash flow in year 1 and its earnings per share in year 2.

William Kerwin, an equity analyst at Morningstar, said the acquisition of Splunk will help boost the company’s cybersecurity business, which has been underperforming for the past few years. The investments in AI could help it win customers in the public cloud space, where it has been losing market share to competitors such as Arista Networks.

In the meantime, the company remains a stable leader in enterprise networks and data centres, growing in the low single digit range and generating good profits, while those markets are slower growth, they are not going anywhere.

In the near term, however, the half of Cisco’s income stream comes from non-recurring sales is experiencing what Mr. Kerwin called a COVID 19 hangover. During COVID, companies bought networking equipment to support their employees’ shift to remote work and now many have excess inventory.

The company expects revenues to earn $52.5 billion.

Linking to dividend paying stocks, a company the size of Cisco will tend to make money the question is how much money and what is the growth potential. If you own the shares for 5 years you would have double your investment or you likely did not lose money, but there were better alternatives. If you bought for growth, not the best, if you bought for the long-term not a bad investment. When you are investing a key question is what do you hope it does short and long term? Are you buying for growth or long-term increase in asset value?

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

If you have a question, the overwhelming majority of people on the planet will start with google. Personally I like to start there because an alternative such as Bing has multiple stories on the page and they are distracting. If you start with Google, the algorithms will bring up what you are looking for along with the most popular sites. Part of the reason for sites to come to the top is to pay for or pay for advertising. Is that good or not?

In an article by Matthew Barakat of the Associated Press, one of the lawsuits going on in Washington is the US Justice Department versus Alphabet (Google) and lawyers for the justice department said is an illegal monopoly propped up by $20 billion spent each year to lock out the competition.

Google’s lawyers said the ubiquity flows from its excellence and its ability to deliver results customers are looking for.

The $20 billion is contracts Google has with companies such as Apple where the default search engine preloaded on cellphones and companies. (if a customer does not like it they can change the default).

Apple testified its uses Google because they consider its search engine to be superior to any other company.

Google says while it does hold a dominant position over general search engines such as Bing and Yahoo, it faces much more intense competition when consumers make targeted searches. Other social media platforms exist and people use them.

The Judge, Justice Mehta will make a ruling within the next 3 months.

Linking to dividend paying stocks, once a company becomes dominate in its field and can continue to make profits and pay dividends, some people will like it and others will not. The people who like it are investors, the ones who do not will be looking to break the competition and lower costs. Some areas such as utilities have a great deal of regulation or laws that take a great deal of effort to change the regulations. This is one of the reasons why large companies have large legal departments.

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

Every company in the world has added a service that will be forever needed, the cybersecurity costs. The internet has changed the way the world finds and uses information, however with all the good comes the possibly of negative or fraud on the internet. We all know the cybersecurity is needed, but do you really know what the companies that protect you do or how they think? A book called The Fifth Domain written by Richard A Clarke and Robert K Knake published by Penguin Press, NY, 2019 helps answers the questions.

The authors are well known by Fortune 500 companies as well as the Situation Room in the White House or are listened to by policy makers. The best strategy can be best summed up with a single work resilience.

The reality of the internet as we know and love it today does not lend itself completely to traditional national security approaches. Ultimately, what we want is to be able to ignore cyberattacks, to be able to slough them off and continue on with our business rather than being forced to escalate. We want to make our defenses so good, and our architectures so strong, that we do not care about whether we are being attacked most of the time because the attacks have no serious effects.

Cyber resilience must be built upon, rather than be seen as a replacement for sound security fundamentals. Resilience is about the ability to rapidly respond, return to a good state, manage bad outcomes, and learn from the incident so that the future incidents are less likely.

One of the people the authors interviewed was CISO Rogan Amin of the JPMorganChase who wrote papers for the International Conference on Information Warfare. The authors write the next time you think about JPMorgan, it is really a tech company that lends and invests money. The company has a workforce of 225,000 people and 50,000 are in the information technology field. (in comparison Facebook has 35,000 employees and Google has 60,000 people).

Often the cybersecurity as thought as catch and kill which means – reconnaissance – weaponization – delivery – exploitation – installation – command and control – actions. The offence always has the advantage because they know why they want to do itself the information. Do they want to copy the information – download the research and development? do they want to know the people? gain money? For the cyber security people they have to think like a hacker.

It is important to know the large cyber companies such as CrowdStrike and Palo Alto Networks share information about the latest information through Cyber Threat Alliance (CTA). Members share 4 million indicators a month.

The book discusses threats from outside the US – they are real. Often times organizations will expect to be compensated for the loss by insurance companies. However, some insurance will only insured if its act of war. This implies finding where the bad guys are based and what their motives are.

The book discusses policy questions for the government and how cybersecurity can be better for all.

One of the many ways you can personally protect yourself is to keep the limit on your credit cards low and do not answer all the information truthfully. Once in a while pick something that you will know but someone researching you will not know, a famous example is Citizen Kane and rosebud.

Linking to dividend paying stocks, one of the elements a dividend investor is looking for is recurring payments, we all know one way or another you need to pay for cybersecurity protection. Due to the recurring payments, that makes cybersecurity companies attractive, which one you pick is a matter of your homework. Recurring revenues to a profitable company is a good thing.

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

If you look around to see how people move around a common denominator will be the smartphone. People walk down the street with their phones, people put their phones on a stand in their vehicles, part of the clothing is given to the smartphone. The 2 biggest suppliers on phones are Apple and Android (powered by Google), but the more important company is Apple. For the past few years, before the growth of services, the company lived on the sales of iPhone.

In an article by Stephen Nellis, Max A Cherney and Yuvraj Malik of Reuters, Apple reported for the quarter and Apple expects to return to a growth in the future.

In the 2nd quarter, sales fell to $90.8 billion beating the estimates of $90.01 billion. For the quarter, iPhones sales fell 10.5% to $45.96 billion compared to analyst expectations of $46 billion.

Apple executives note in February, Apple benefited from a $5 billion surge in iPhone sales as the company caught up with supply-chain snarls during the pandemic lockdowns. China is Apple’s biggest market and sales were $16.37 billion down 8.1% but above analyst expectations of $15.59 billion.

CEO Cook told the analysts, Apple had spent over $100 billion on research and development over the past 5 years and feel very bullish about our opportunities in generative AI. Expect to see the new iPhone will some capabilities in the September launch.

Apple also announced the largest stock buyback of $110 billion. The effect of a stock buyback is to reduce the shares which all things being equal will increase the earnings per share which means the multiple of earnings to price will be low or the stock price will increase to the old level multiple. Apple earned $1.53 per share, above the estimates of $1.50 per share.

Linking to dividend paying stocks, analysts evaluate stocks and for the larger companies, they tend to be close or within a slight margin of error. It is very rare that a larger more established company does remarkably better (it happened with Nvidia) or worse than analysts’ expectations. For your investments in larger companies, this means you can trust the analysts. You picked the company for a variety of reasons and being profitable is one of them. The company still needs to deliver or execute on their business plan, but will larger companies there will be fewer surprises and that is a good thing.

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

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.

When public companies generate profits there is an expectation that after the company has invested in itself, the company will reward shareholders. The shareholders is rewarded by the profits which allows the company to buy back stock and pay dividends, often times both. For some investors, they would prefer stock buybacks which are not taxable, but does help increase the share price. Other investors prefer the cash, but if you own thousands of shares taxes plays a role in your decision making.

In an article from Reuters, for many years the big tech companies have generated billions in cash and most of the money has gone into large bank accounts and the reinvestment in the business. Last year, Facebook announced a dividend. This year, Alphabet has announced a dividend along with a $70 billion stock buyback. Buybacks work as follows: every share trades a price multiple calculated as EPS or earnings divided by number of shares outstanding. If the number of shares decreases, the earnings will increase on a per share basis which pushes the share price higher.

For Alphabet, revenue was $80.54 billion for the quarter, compared to estimates of $78.59 billion. The value of the shares increased with the quarterly results.

Linking to dividend paying stocks, there are a number of reasons to own stocks however once it can consistently make a profit to pay for dividends it allows for the holding to become years rather than the owning for the growth of the share price. It is a good thing for a company to pay a dividend because most companies cannot. The fact the company can means less risk as a shareholder for the cycles of the stock market.

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

When something is new or new to the general public, it is often expensive and early adopters pay extra. As the general public believes it needs to have the new item or gadget there is a rush to provide to them and eventually prices come down and the new item is embraced by the general public till the next innovation. Along these lines, AI software is new to the general public and the adoption is becoming rapid.

In an article by Karen Weise and Cade Metz of the New York Times News Service, similar to other new gadgets and products, the race to build generative AI systems, the tech industry has been bigger is better, no matter the price tag. Now that AI is in the general public, the expectations are that more and more products and services will use the generative AI, companies are embracing AI technologies that are not as powerful, but costs less and that can be a good trade off for many users.

Microsoft has introduced 3 smaller AI models that are part of a technology family the company has named Phi-3. The smallest model can fit onto a smartphone and can run on chips that are not Nvidia’s or the AMD type.

Chatbots are driven by large language models or LLMs. The system does analysis on digital books, news articles, chat logs and other text culled from across the internet. By pinpointing patterns in all that text, the system learns to generate text on their own. To do this process requires considerable computing power and that is expensive.

This is the reason why the large technology companies are building data centers

The smaller models are a trade-off between power and size. Researchers believe the smaller models can at least approach the performance of the leading chatbots such as ChatGPT an Google Gemini.

Linking to dividend paying stocks, in every industry there are trends and cycles, the big cycle at the moment is generative AI. The generative AI is the new part, the AI has been used in many companies for a long time, but it was limited to a few users particularly trying to match ads to consumers to raise spending or when your app says the offers best suited to you to open your wallet. As months go by, the generative AI will be in most products and that can be a very good thing to allow for better decisions. One very good decision is lose less money which means depend on both dividends and capital gains. In the universe of companies there is much choice and most of us cannot buy every company, how do you choose?

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

In the movie the Field of Dreams staring Kevin Costner, a line was repeated if you build it, they will come. The movie was about baseball and the Kevin Costner character built a baseball field in the corn fields for deceased ballplayers to play baseball. Because it was the movies, the players came to play. In reality, there was no one watching the players and the baseball field was less than profitable. In the real world, if there is a large enough government grant, infrastructure will be built.

In an article by Ken Ritter of the Associated Press, a $12 billion high speed passenger rail line between Las Vegas and LA has started construction. The promoters of the rail line suggest that by 2028, millions of people will take the train at a cost of $400 round trip. If you believe the millions or the trains carrying 30,000 people a day, check out the Amtrak trains or Interstate 15 traffic. In 2028, the summer Olympics are to be held in LA.

The government has received $6.5 billion from the Biden administration including a $3 billion grant from infrastructure funds and approval to sell $2.5 billion in tax exempt bonds.

The company building the train is called Brightline West and operates a fast train between Miami and Orlando in Florida. The train will be in the median of I-15 and cut the 4-hour trip by car to 2 hours. Las Vegas is a popular driving destination for Southern Californians and I-15 is often crawling on Sunday traffic.

Linking to dividend paying stocks, if you think about the Field of Dreams there are many ideas in the marketplace searching for dollars, most of them should remain as ideas. However, the dreaming is a good thing in order to make things better. For a dividend investor, the idea actually has to have a market that is willing to buy the product or service at a profit or profit = revenues – expenses. It is simple formula, but before you put your money on a dream, examine the balance sheet to ensure there is money to be made after the government money is used.

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

In many countries around the world, many services started as private but as time went on the country decided to bring them under a quasi state control because the services provided were needed by everybody. Some examples are the transit, utility sectors, and water and sewer services, in most states this is provided by government because everyone needs to use the services. As time went on, the philosophical argument about having the private sector do the job would result in greater efficiency and lower bills. This was done in London, UK.

In an article by Sarah Young of Reuters, Thames Water which supplies about 25% of the British population with water and sewage services, is trying to have the regulator raise bills by 40%. This increase would allow Thames Water to tackle sewage spills and fix leaks and do environmental projects. The additional problem with Thames Water is it has $27 billion in debt and the regulator Ofwat, wants to minimize bill increases.

It is noted that the 40% increase propose by Thames Water compares to the 31% increased proposed by the other water and sewage companies.

Chief Executive Officer Chirs Weston said we will continue to discuss the issue with the regulators and stakeholders as the desire is to make a good return on investment. The owners included Britain’s Universities Superannuation Scheme, China Investment Corp, Ontario Municipal Employees Retirement System (OMERS), British Columbia Investment Management Corp (BCI) or large institutional investors. The owners rejected adding a $846 million equity lifeline, saying raising prices is a better solution. Some of the owners have since written down the value of their assets.

The regulator will propose a draft solution by mid June.

Linking to dividend paying stocks, as investors we often believe have private equity or public shareholders will make an organization better. The problem is for organizations that are to serve the general public, it is very hard to cut off the service or limit the service to people who can afford the price of the service. Private companies can limit service or not service non profitable customers, organizations serving the public have to service the public. Otherwise they are efficient as any other organization.

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