Finding AI pearls amidst the hype

Is AI just a fleeting trend? As AI reshapes our day-to-day lives, this seems increasingly implausible. Unlike the dotcom era, which relied on bulky, localised hardware, AI thrives on flexible, global technologies such as cloud computing and advanced chips.

These foundations make AI more adaptable and far-reaching. Its potential is only beginning to be realised. The real potential of AI ranges from new business opportunities to operating businesses more efficiently.

As AI continues to evolve and integrate into various industries, it presents unprecedented opportunities for investors. However, capitalising on these opportunities requires more than enthusiasm; it demands a strategic approach that understands the nuances of the AI landscape.

So, what makes our approach to AI investments fundamentally different from the competition?

A catalyst for growth

Firstly, we believe that the successful implementation of AI acts as a catalyst for rapid growth. By leveraging AI, businesses can scale faster, enter new markets, and outperform competitors. It can also lead to greater efficiency, innovation in product offerings, and new revenue streams. Our focus is on companies that recognise AI as a tool for long-term sustainable growth. AI can also be a critical differentiator. We invest in companies where AI sets them apart from competitors, whether through unique products, services, or operational efficiencies. This differentiation can lead to increased market share and stronger financial performance.

All that glitters is not gold

While AI can add significant value to a business, it’s not a guarantee of success. As AI has taken the world by storm in the past few years, many companies are desperately trying to incorporate it into their operations without fully considering how it fits into their overall business strategy. That's why investors have to carefully examine how much of this is mere trend-following and how much actually adds real value.

Our investment strategy filters out the noise by focusing on companies where AI forms a significant part of the business. We seek out firms where AI isn't just an add-on but a substantial component of their operations. This ensures we back companies that deeply integrate AI technologies rather than relying on superficial features—positioning them well for future growth. These criteria help us narrow down our AI investment options, but it's just the first of many steps.

Focus on business models and valuation discipline

Our unique approach continues with an in-depth analysis of how companies create value—their business models. Instead of simply getting excited about the latest AI technologies, we carefully examine whether a company has a solid plan to turn its innovations into real profits. By focusing on business models, we ensure we're investing in companies that not only have great ideas but also display solid execution with a clear path to real-world success.

We are particularly careful about how much we pay for our investments. We don't invest in any AI company just because it's popular. Instead, we assess what a company is truly worth to ensure we're getting optimal value. This careful evaluation helps us avoid overpaying and reduces investment risk during downturns.

A well-balanced mix of proven and future winners

We rely on a concentrated, high-conviction approach for our fund. Our strategy includes a balanced mix of companies that have already proven they can succeed and those with the potential to be big winners in the future. This means we focus on well-established companies as well as promising newcomers across different industries and stages of technology adoption.

By diversifying our investments, we balance potential risks and rewards. It allows us to benefit from the stability of mature companies while capturing growth opportunities from innovative companies. We spread our investments across various end-markets to reduce the impact of any single industry's downturn on our overall portfolio. This balanced approach ensures we are well-positioned to adapt to market changes and capitalise on technological advancements.

Enablers and adopters

And while one might think this puts strict boundaries on the strategy’s investable universe, nothing is further from the truth. We are not just looking at OpenAI and Nvidia chips—that's only scratching the surface. The whole AI value chain covers both "Enablers" and "Adopters".

“Enablers” are companies that develop the technologies making AI possible. Examples include companies like Amazon, which allows cloud application for plenty of software users. "Adopters" on the other hand, are companies applying AI to enhance their products, services, or operations. For instance, digital platforms like Meta implementing AI for better content recommendation for its users and better targeting for its advertisers.

DPAM L Equities Artificial Intelligence

While AI reshapes industries worldwide, our fund managers stand ready to harness its full potential. With a strong track record in managing global, future-oriented funds, our specialized team will direct the new DPAM L Equities Artificial Intelligence fund towards companies that deeply integrate AI and apply strict valuation principles. By including both established leaders and innovative newcomers, we are ready to seize growth opportunities while managing risks effectively.