It’s no secret it has captured the investor’s imagination.
The folks on CNBC can’t help but report on things like ChatGPT every chance they can.
But here’s the thing.
When I gather my team around the virtual conference room and take their temperature on AI, one thing continues to be said: AI will have a dramatic profit-based impact on boring businesses where few investors are looking.
Boring doesn’t mean unprofitable.
But look, AI will continue to have a material impact in an industry like tax, accounting, medical devices, health care, and financial services. And from there, it’ll be in things like manufacturing and tooling.
But all we hear about today is ChatGPT.
Large Language Models (LLMs) are cool and useful, but it’s far from what’s coming.
Goldman Makes a Risky Bet on Chinese AI
I’ve said this before, but it’s worth repeating; The US and China have been in a “cold war” for years.
Trade disputes, cyber-attacks, piracy, foreign policy disagreements — you name it!
Today’s battle du jour is AI supremacy. You probably already know that the US restricted the export of specific AI processors to China. NVIDIA responded by making its Chinese customers a weakened processor, but now the government may also be stopping those.
The bottom line is the U.S. government isn’t interested in helping China compete against the other, friendlier nations in the race for AI supremacy.
Knowing this…
Isn’t it odd that Goldman issued a couple of research notes to clients around the middle of this month, naming three Chinese stocks as opportunities (albeit not free from risk) in the AI space?
The three companies Goldman highlights are Baidu, Alibaba, and Tencent.
The analyst on the report is Ronald Keung. I understand the need for diversity, and not just among industries.
Diversity among countries is worthwhile as well.
But when we’re talking about communist regimes, risk management needs to be placed well above everything else.
To Ronald’s credit, he’s clearly looking at generative AI’s impact on cloud computing to justify his bullish bias.
My team and I are very familiar with these companies. We’ve followed them for years. And for the most part, they’re excellent companies.
Unfortunately, here’s the problem.
Nobody’s Talking About This
We live in a world where most Chinese-based companies are uninvestable due to the unpredictable nature of the Chinese government.
Oh, and let’s not forget what we already know; The U.S. government is hellbent on restricting Chinese companies from accessing the chips necessary to make AI-based tech really hum.
The bottom line is Ronald may believe Alibaba is cheap on a valuation basis, and Tencent may be a rockstar in the world of advertising and payment recovery, but, and I’ve seen this repeatedly over my career, until there is massive political reform in China, investing in its economy is very risky.
But hey, if someone convinces Tencent to sneak out of the country in the middle of the night and set up shop in a capital-friendly country, I’ll be the first investor through the door to reevaluate it.
As always, we’ll continue to follow the story as it unfolds…
Plus, we’ve uncovered a few opportunities that are way less risky.
Stay tuned.
Author: James Altucher
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