The artificial intelligence investment landscape is entering a new phase as intense competition and falling prices make generative AI less profitable than initially anticipated. According to CNBC TV18, Alicia Garcia Herrero, Chief Economist-Asia Pacific and Middle East at Natixis Corporate and Investment Bank, highlights that OpenAI is considering aggressive price cuts across its offerings due to expected competition with Anthropic. The market is now swallowing the reality of GenAI not being so profitable, with even companies providing hardware or software support like Qualcomm and MediaTek in Taiwan needing to adapt to reduced hyperscaler profitability. However, profitability is now the key issue while the broadening of AI usage continues, with growth opportunities remaining in compute-focused areas.
Saurabh Mukherjea of Marcellus Investment Managers is avoiding traditional AI giants like Nvidia, instead focusing on companies that enable AI's physical infrastructure. According to reports from The Economic Times, Mukherjea's strategy targets turbine manufacturers in Germany and America, chip foundry equipment makers, and industrial component distributors across Europe and America. The fund maintains zero exposure to Nvidia through all of 2024, a year when Nvidia surged approximately 2.7 times and pulled the index with it. As CNBC TV18 reports, data centres, space-related data centres and all of that will continue to grow even as GenAI profitability faces pressure.
Global data centre capital expenditure is running at $700-800 billion annually, based on what hyperscalers disclose in their annual reports, and Mukherjea believes this level will hold for the next four to five years. As reported by The Economic Times, the supply chain that feeds this buildout — including chip foundry equipment, cooling liquids, connectors, switchboards, and gensets — will generate between $100-300 billion in annual revenue. The S&P 500 carries roughly 50% weight in hyperscalers plus Nvidia, while Mukherjea's portfolio holds only 20% in those seven names. According to CNBC TV18, if you're focused on compute, growth opportunities remain despite GenAI profitability challenges.
Marcellus has built a significant position in defence and aerospace companies driven by geopolitical factors rather than AI-related gigawatts. According to The Economic Times, Airbus has its order book sold out until 2041, with GE Aerospace's engine supplier having orders covering the next ten to eleven years. The sector is seeing annual capex in excess of $1 trillion. Mukherjea bought Airbus in its entirety and is also purchasing components globally, including through the domestic Little Champs portfolio where some manufacturers feed directly into the global aerospace supply chain.
Mukherjea's strategy extends to ultra-luxury brands, noting that AI is concentrating wealth at the individual level. As reported by The Economic Times, the bright coders and system architects inside banks and tech firms are being paid disproportionately more because they do the work of multiple people. The ordinary office worker is increasingly facing redundancy as repetitive office jobs are exactly what AI is good at eliminating. The world's billionaire count is growing at 7% per annum, a trend Mukherjea built his thesis on four years ago and says has played out.
Marcellus has launched its Global Equities Fund, a retail scheme designed to give Indian investors direct access to world-class global businesses via the GIFT City route. According to The Economic Times, the New Fund Offer (NFO) closes on June 19 and is built around four multi-trillion dollar megatrends of power, defence and aerospace, AI-linked capex and luxury consumption. Arindam Mandal, who runs global equities for Marcellus from the United States, argues the physical presence matters for stock selection, giving the firm a distinct edge in identifying and investing in businesses that compound capital across economic cycles.
