Tech Giants' Existential Crisis: Why It's Happening - PA Europe

The world's leading technology companies, such as Alphabet, Amazon, Meta (formerly Facebook), Microsoft, and Nvidia, have seen their share prices skyrocket in the past year due to the excitement surrounding artificial intelligence (AI). However, according to Alec Cutler, manager of the Orbis Global Balanced Fund, this hype could be their downfall. These tech giants are facing an "existential event" after having overpromised and overspent on AI in a winner-take-all race for supremacy.

These companies have all claimed that they will lead the AI revolution. Yet only about two of them can realistically achieve this goal, considering how each has been spending as if they're going to come out on top. If they fail to deliver on these promises, which most likely will happen, according to Cutler, then they risk losing investors' confidence and relevance in the industry.

The need for these corporations to become leaders in what is projected to be one of the most lucrative technologies of the next decade is crucial for their survival. As multi-billion-dollar entities continue to grow at unprecedented rates, there needs to be new growth drivers that ensure continued expansion without plateauing or declining relevance.

However, despite all this uncertainty and potential risk involved with investing heavily in AI development, markets seem convinced by these companies' claims of remaining innovative front-runners within the field. This mindset has led many big players like Google/Alphabet Inc., Apple Inc., Meta Platforms Inc., Amazon.com Inc., etc., to make massive investments towards improving their technological capabilities further than ever before.

Meta plans on spending up to $40 billion just this year alone on building its own AI infrastructure, while Microsoft already spent over $14 billion during Q1 2024 alone! Such huge capital expenditures bring substantial monetary loss risks if they do not yield expected returns, eventually falling below the line; hence, some experts believe overall market sentiment may shift sooner rather than later once reality sets regarding the actual profitability prospects associated with ongoing technological advancements made recently, especially concerning AI.

Richard de Lisle, manager of the VT De Lisle America fund, believes that staying ahead in the race for AI dominance is a matter of scale and financial power. Companies like Tesla have already fallen behind due to having less spending power compared to their tech giant peers. After its share price soared 101.7% during the 2023 AI rally, it took a hit this year as investors began questioning if Tesla could keep up with other tech behemoths' capital requirements.

According to de Lisle, many tech giants are now more vulnerable than ever before due to high volumes of spending, merely attempting to stay relevant and competitive within rapidly evolving market spaces dominated by new entrants who aren't afraid to spend big when necessary.

Despite all these uncertainties surrounding future market leaders amongst top-tier technology firms, there appears to be some level of certainty further down the supply chain, especially concerning companies directly supporting Nvidia Corp.'s operations (which de Lisle predicts will lead the stock market next year). He recommends investing in such firms instead of betting which ones may eventually win the "AI race" overall since, regardless of who comes out on top, they'll still need significant amounts of energy to support their large-scale operations anyway, hence why both Cutler and himself have been allocating resources towards businesses that address universal needs for power accordingly.

In conclusion, while mega-cap technology companies continue to battle it out for supremacy within the artificial intelligence industry, smart investors should be looking at those providing ammunition, i.e., electricity providers and similar infrastructure-related entities, who stand to benefit greatly from ongoing technological advancements made thus far, irrespective of individual winners and losers, ultimately emerging victorious after dust finally settles down the road someday soon enough!