Transformation of AI — Evening Brief – 07.18.24
Hedge fund managers may have already experienced the transformational moment of artificial intelligence (AI), as they have been adopting technological trends on a large scale this year. Earlier this month, Point72 Asset Management was reportedly seeking to raise approximately $1 billion to fund a strategy that prioritized AI. According to a recent Bloomberg report, Steve Cohen’s latest fund is expected to invest in both long and short AI hardware and semiconductor companies on a global scale.
The decision to invest in publicly traded AI businesses comes as many private equity funds have struggled to outperform their public equity counterparts. Last month’s stock market rise fueled hedge funds’ gains throughout the month, with managers capitalizing on the current AI “gold rush” as the industry continues to produce positive alpha for investors, according to a recently released PivotalPath report.
According to the data provider, energy and utilities continue to gain from the shift caused by the power requirements of new and developing technologies, particularly AI, and high prices. Managers believe utilities are witnessing a sector rotation, with numerous names expected to react similarly to technology equities as they gain from AI.
To state the obvious, recent 13F filings from the first quarter show that chipmaker Nvidia, as well as businesses like Meta and Microsoft, have emerged as popular AI holdings.
Nvidia recently surpassed Microsoft as the world’s most valuable company at $3.3 trillion, with its share value up 174% so far in 2024, in what some have compared to the rapid surge of dotcoms prior to the bubble burst over 20 years ago. The difference here, however, is that Nvidia is a money-making machine, unlike many of the profitless dotcom businesses.
Point72’s Nvidia holdings were $276 million, according to 13F filings issued in teh middle of May. Two Sigma, a tech-heavy hedge fund with a private equity component, had $849 million. The web is saturated with offers to get in on the AI stock frenzy, and as Point72’s Cohen has publicly stated, there will be winners and losers. For the time being, it appears that hedge fund portfolio managers are prepared to play both sides of potentially volatile trading throughout the second half of the year as the technology becomes more ubiquitous.