“… the incredible AI opportunity for consumers, our partners and for our business. I’ve compared it to the successful transition we made from desktop to mobile computing over a decade ago.”

 Sandar Pichai, Google’s CEO during Google’s last earnings call. 



Big is beautiful in the land of technology. 1st Quarter’s Topline revenues are ahead of market expectations and cost cutting are sustaining margins. Management guidelines remain cautious but above analysts’ original forecasts. Widely discussed Artificial Intelligence stands as a powerful investment theme even though it implies significant capex. Within software companies, it is drawing a dividing line between the have and the have not. Not only profitable big technology names benefit from high margins, strong cash flow and balance sheet, but, importantly, they own and control the infrastructure and they are creating the standards. Moreover, Google and AWS are reporting significant in-house involvement in AI hardware. For example, Google whilst using and praising NVDIA’s GPUs (Graphic Processing Unit) has developed an in-house TPU (Tensor Processing Unit), a complex semiconductor dedicated to Artificial Intelligence. 

AI is disruptive and as such a clear positive for some happy few with cash, scale, and technology. These have a fantastic opportunity to lead and gain leadership in key adjacent business such as security or analytics. This is an equally frightening challenge for specialist software companies running on pre-artificial intelligence premises. Alteryx, a highly respected leader in analytics, experienced post-earnings share price collapse. Is it the canary in the coal mine? 

Who are the winners? 

This is a very open game. For now, the market voting machine has elected NVDIA and Microsoft as the clear winners and Meta as a credible outsider. NVDIA’s valuation sounds farfetched with an EV/EBITDA of 85x. Microsoft rallied more than 10% post earnings whilst Amazon and Google stumbled. We think this is more a reflection of the strong and aggressive communication skills of the three preferred names than reality. Jassy, Amazon’s new CEO, is proving again that he is a very skilled manager and a poor communicator. Sandar Pichai’s attempts to balance risks have been misheard, however Google owns the market of search for good reasons, and it sounds a very good starting base. They have a deep in-house R&D history in the field, enjoy a very high level of trust. With Android, Google control a big share of the mobile digital infrastructure a key advantage when compared to Microsoft. This is a big market and there is room for several leaders. Google and Amazon will be among them. Apple* is the elephant missing in the room. It will be interesting to hear what they are saying or not saying about it. 

Deshima Smart Data owns Google, Amazon, Apple and Microsoft