The rise of artificial intelligence – Transforming the world

Jennifer Martin
Welcome to the Angle from T Rowe Price. The podcast, where curious investors can gain an information edge on today's evolving market themes. Sharper insights on the forces shaping financial markets, begin here. In this season of the angle, we are focusing on the exciting world of artificial intelligence, otherwise known as AI. I'm Jennifer Martin, a global equity portfolio specialist, here at T. Rowe Price Associates.

And I will be your host, as we learn more about this intriguing, and rapidly evolving area of the global economy and financial markets. We'll investigate the technology's rapid ascent, impact on different economic sectors, its potential within investment research and the emerging sustainability challenges surrounding its adoption. In today's episode, we are learning about how the speed of innovation and the acceleration of the AI cycle has taken the market by storm.

We have a real treat today. Joining me is Dave Eiswert.

Dave is a global equities portfolio manager here at T. Rowe Price Associates. Dave is a thought leader at the organization, and a true disruptive thinker when addressing change in the market. He has a huge wealth of experience having been through numerous cycles,
including the first technology bubble in 1999 2000, and has embraced the idea that there is alpha in change.

Dave regularly meets with some of the largest companies in the industry and can offer great insights of how AI is transforming our world. Dave, Welcome to the show.

Dave Eiswert
Thank you, Jennifer. It's always a pleasure to speak with you.

Jennifer Martin
As we started this year, the zeitgeist of the market continues to revolve around artificial intelligence, and we appear to be in a period of AI hype and skepticism with markets moving fast around this theme. What's your perspective as a diversified manager on this AI cycle, and do you believe it's real?

Dave Eiswert
Thank you, Jennifer. Well, you know, investing is all about cycles. You know, we see different investment and innovation cycles over over history. And I think, you know, most investors
who are experienced and live through a lot of cycles, they see patterns and similarities and, and that doesn't mean that that cycles are, you know, all hype or, you know, you know, maybe Emperor's New Clothes.

Certainly, there's always an element to cycles that is speculation. But these these cycles, they really power society, right? They change society for the better, over time. And with that comes, you know, some collateral damage here and there. And I think, you know, as a diversified manager. So, I'm very interested in cycles, and I want to understand them. I want to understand what stage we're in, in a cycle. I want to understand how the competitive advantage is changing.

And I think one of the most interesting things about this AI cycle is really this idea of dialectic around the giant tech companies, and how in the last 30 years they've sort of ascended to this quasi monopoly kind of status. And and even in the last several years, I mean, they've been the darlings of the market, and now we have a cycle which I think for the first time in a long time is is, you know, threatening to change some of the dynamics between those companies.

Jennifer Martin
Well, as we're as we're navigating the current AI cycle today, maybe you could share how it is different from 99 2000 tech cycle, or even the 2008 housing cycle, and then also how it's similar.

Dave Eiswert
So, most cycles in history are driven by some sort of combination of innovation, risk taking and debt. So, if you look at things like building the railroads, if you look at things like the Panama Canal, you know, and these were all great massive investment cycles over time. If you look at the tech cycle, right, if you look at the PC cycle, back in in the early nineties, the desktop PC cycle. If you look at the tech bubble in, you know, the late nineties, early 2000, there's some combination of innovation change, speculation and usually debt, right?

And so today you know. It’s even not just technology right I think I think investors out there should think about you know it's not just tech stocks that go through these kind of cycles. The shale boom in the United States, you know, sort of in the nineties, in the 2000s, you know, that was driven by technological innovation. It was driven by speculation. It was driven by risk taking. Right. And really the ability for us to reinvigorate the energy ecosystem in the United States. And again, that is there's capital markets involved in that, there's
innovation involved in that. And so these are all you know, this is a similar kind of thing. And the AI cycle we're in now, it's absolutely driven by real innovation.

I think what you've seen, both with large language models, LLMs, Chat GPT, Anthropic, different kinds of players there in the in the software side, but also the innovations in hardware around GPUs, the innovations around manufacturing of semiconductors really pushing the limits of physics. Those innovations, they've enabled these changes, along with the build up of the dominance of these great companies that their sheer scale, right, allows them to participate in this innovation.

So all those things, there's there's there's similar characteristics in a cycle. What is a bit different in this cycle? Right. There's something that really stands out. There's two things that really stand out as different. The first thing is that the COVID cycle, what happened in

COVID and fundamentally in the global economy outside of Chinese real estate, debt was really moved from the private sector to the public sector.

So you saw consumers refinancing their mortgages. You saw high yield companies terming out their debt. And we really have an absence of a real credit cycle in the economy. So that that is fundamentally different and that it's really sort of this unique thing that happened in COVID, which is completely separate from what we're talking about in in AI. You also have a set of giant companies that really have no cost of capital, and it's because they have
monopoly characteristics. They generate really strong free cash flow margins. They control their markets. And in fact, you've seen like the free cash flow margins of some of these companies. You look 30 years ago, you know, you saw an average of some of the big cap
tech companies that had, you know, low double digit free cash flow margins. And those have moved into the high twenties in the last 30 years.

And so, tremendous amount of firepower to invest in a cycle that is not driven by debt. Right. So look at the housing cycle in the United States. Again, it's not technology, it's housing, but it's an investment cycle really driven by debt collateralization, driven by risky mortgage lending, you know, and that created this this really big risk in the global economy around that debt ultimately busting. The tech bubble was very similar. The big telecom companies, the big energy trading companies. Right. They fueled this pressure around tech investing in the late nineties, was really driven around debt.

So today, you know, we say, well, what's different in this cycle? Well, we've got these giant companies. They've established these massive presences, they've established massive
free cash flow streams and you have this innovation or shock of of AI, and they can invest in this without the constraint, really, at least to this point of the capital markets, certainly not the constraint of debt.

And so the reason that's important, right, is the way an economic cycle usually plays out. Again, whether it's the railroads, the Panama Canal, housing, energy, right, the way they usually play out, you get a low cost of funding, you get you get a lot of investment. You end up with a lot of speculation and then what happens, right? You get inflation. It's a typical economic cycle. The Fed raises rates. When the Fed raises rates, you bust the credit cycle and what you do then is you remove the capital financing from these innovative cycles.

Right. And that causes sort of a collapse. And we see that over and over and over again. In this particular cycle because of the way COVID worked right, the terming out of debt,
because of these monopolies. Right, so what you're seeing in this particular cycle is that there is not a binding constraint from financing. And that that to me is is quite amazing and really makes this cycle different from some of the bubbles.

So so if you compare today's cycle to the TMT bubble, you see a lot of similarities, in terms of risk taking, speculation, but you do not see the financing similarity and that makes it sort of fundamentally different and you have to navigate it differently.

Jennifer Martin
So you highlighted that the cycle is funded by some of the most profitable companies in the world, which is making this probably a lot different for many investors to appreciate that maybe the duration, the scale. And one of the other areas that you've been really expanding on in conversations is the idea that we are now thinking about some of the companies in the market having now contestable markets. The idea that contestable markets are now differentiating this current cycle. And maybe an idea that we can expand on is the idea of contestable markets, and tied into what we've experienced since, I think since the global financial crisis and more recently with the market concentration we've experienced really over the last ten plus years with the Magnificent Seven.

Dave Eiswert
Yeah. So I think this is again, another difference and a critical point. I think in a speculative bubble you often will have companies attacking each other with cheap financing. So basically you have low, you have you have cheap financing, and you're able to then, you
know, make a run. So you saw that in the telecom bubble, right? You saw people overbuilding fiber. Right. And so.

Jennifer Martin
We do we even have have we even use all the fiber?

Dave Eiswert
Right. Right. So so you can get these situations when you have a bubble and speculation where you get people competing with each other. The difference in that we have today, right, is is over the last, you know, again, 20, 30 years, these, some massive companies have built up very defined lanes in which they profit. I mean, you can take, for example, big companies like Apple and Google where, you know, Apple, you know, is using Google search as their default on their phones and Google is paying Apple for that right. And so in a sense, they've developed this symbiotic relationship, right? I sell phones, you sell search.

The issue that we face with AI and the issue of contestable markets is, AI is such a big innovation and such a big fundamental change that it actually is threatening the monopoly characteristics of some of these companies. So, a new way of doing search. A different way to do enterprise computing, a competitive advantage in cloud.

Jennifer Martin
Isn’t this just called disruption, no?

Dave Eiswert
It's called disruption. And we think that AI has created, you know, a crack a crack in the world, right? A crack in the world. And that crack, you know, has the potential to threaten this wonderful core business that you've created. And so you could see that in enterprise compute, you could see that in search, you could see that in mobile phones, you could see that in entertainment, you can see that, so across a lot of very established extremely profitable businesses.

The reason that contestable markets matter in that sense is, if you think about it from a game theory sense, you you're you're sitting if you're if you're a manager or an owner, or an operator of a company that has is extremely profitable and is benefiting from the the current state of the world. Right. The status quo. And then there's this structural change. You your game theory response is to invest like mad to stop disruption. So, I think that's the key element of this, is that the stakes are so incredibly high for you to change, evolve, invest, build out your own competitive advantage that you're forced to invest, and you're
and you're forced to in some sense counterattack. And that counterattack then creates sort of a reciprocal investment from your competitor. And so, think about this. Think about this
is sort of a dialectic, right, over a long period of time, where you build up these monopoly powers and they build up massive cash flow and war chests. They also build up a particular kind of culture. Right. And you could argue some arrogance in some of these cultures. And then you have a fundamental change in technology, really a massive fundamental change, like as big as we have seen from the Internet.

And suddenly these companies that are massively profitable and have these amazing businesses, they have to respond to that, and they respond by fighting each other in a way that they really haven't fought before. So that dialectic, you build it up, you have an
innovation. The innovation causes this new change in reorganization of competitive structure. New champions arise, new, and look, investors and people in general hate change. They want things to stay the same but get better. Right? And so it's difficult for
investors to react appropriately. They're skeptical of these changes. They're skeptical of the idea of contestable market. And you almost have to be hit over the head with it. Right. And so I would anticipate right in the next year or two, you're going to see moves from these large sort of monopoly esc companies, that are surprising and shocking and wouldn't have happened several years ago because several years ago they did not feel the threat of that contestable market.

And then again, there are responses to that. Right. So in some sense, you've changed, you've changed an equilibrium. Things are being realigned, companies are being revalued for how they're positioned around around the supply chain of AI of and, you know, even and we've talked about this, you and I have talked a lot. But what is the role of energy? What is the role of real estate? What is the role of transmission lines for the grid? What is the role of geography? Right. As this is realigned. So contestable markets, right, are coming out of a long build up of a dialectic that created the potential energy for change. And now we're
seeing what could be change. Now, all of us should be skeptical that this is real. We should all we should all question it. We should all say, is this really contestable markets? Is it not? And but but I would say what's so fascinating about today and about investing today in this area is that we have the initial conditions for real change. And so we need to be aware of that and we need to be thinking about the implications of that.

Yeah, that that is the I mean, I think any skeptic around AI that you share a meeting with or that you see in a meeting with a company, the the initial skepticism is like I tried this and it didn't work, or I didn't like it or it didn't make my life easy. I think we've seen that with
autonomous driving. We see that, which is also a function of AI, right? I think the improvements just before I touch on that monetization, I would just tell you that one of the byproducts of any bubble is an acceleration of innovation. So, some of the things that have gone on with ChatGPT, with GPUs, with data center buildouts, with the capacity buildouts that we've seen. When we built out fiber, it was empty and people said, see, it didn't work. But that capacity that we built then became the rails for e-commerce, became the rails for streaming media, became, it enabled later innovation that used that capacity. Same thing with with electricity, the same thing with railroads. Right. All these things we, there's a bubble we built out from.

Jennifer Martin

iPhone.

Dave Eiswert

iPhone.

Jennifer Martin

That’s your favorite.

Dave Eiswert
That's a great example, a great example of building out that capacity and then seeing what comes next. And so human beings have a great capacity to take advantage of spare capacity and build new business models. I mean, I think, again, the tech bubble created that. I think some innovations around infrastructure in shale, right. Created new new businesses. So, I think one of the things you've seen, apart from your question around monetization, is the advances we've made in the last two years in compute power are
already enabling advances in things like autonomous driving, that we did not expect. Like if you asked me about autonomous driving three years ago, I would have told you it's interesting. It's going to happen right over the next ten, 20 years, and I would say what's stood out to me across that industry is that the acceleration of the buildout of AI for enterprise for cloud has enabled, right. The acceleration of that other business model, right.

And so in some ways, the way when you talk about monetization, what we talk about are AI factories, and I don't know if other speakers have have talked about this, but you can think about different AI factories and self-driving cars will be one AI factory. Copilot's for software will be another AI factory, right. Media entertainment will have an AI factory and these different factories are going to be driven off of externalities that come from building up our semiconductor ecosystem, building up our fablus infrastructure, building up our our contract manufacturing infrastructure. When, looking back in the past, streaming media and DVD by mail and the whole blockbuster ecosystem, you know, you you would look at the original streaming services and say, I went on there and there was nothing to watch, or all the movies sucked. I mean, I heard that from so many people in the beginning of streaming.

Jennifer Martin
Now, if you took it away your kids, your kids would revolt.

Dave Eiswert
They would leave, they would. Yeah. Your kids would divorce you. But you look at that initial skepticism and I think we should all be skeptical, but we should all recognize, and you know, the power of the build out and what the build out will enable, and let your imagination really think about how that build out will enable new business models.

And again, be patient. It doesn't happen overnight, but realize that there are externalities to this. And so I, I think we will find ways to monetize the capacity we're building. It may not be just a copilot. It may be full self-driving, it may be media and entertainment. It you know, it may be some area that you don't really realize right away. So, I would encourage people instead of dismissing the monetization of AI, right, to really be pushing out in all these different what I called AI factories and saying where will this take hold, where will this first be game changing? And then as you find those areas, you push deeper, right? You creep out onto the ice into those areas. Some of these changes will be very obvious, right, and then in other areas we’ll be surprised. Right. We'll be surprised about how AI changed the way people learn in school or will be surprised about how AI created self-driving or how AI changed, you know, even something like warfare over time. And I think how warfare changes, it's, I think we're going to be surprised. And so so anyway, be open to these surprising surprises. And then I would say, one thing as a diversified portfolio manager that you really have to think about is as AI takes hold in one industry or another, it's going to have implications in areas you didn't expect. It's going to have implications for how factories work. It's going to have implications for how transportation works, and that's going to affect companies that may, you may think are somewhat removed from AI. And it turns out that AI had a big impact on their business.

Jennifer Martin
Well, there's a lot to unpack there. I do love the idea of creeping out on the ice, and I think many people will appreciate when you got your iPhone. None of us anticipated we we would be in the back of someone's Honda because of Uber. Right? Right. How many times have you been so happy that they've showed up on the right corner? So, I do love that idea of being open to change. And I do think one of the things you've made very clear is, this cycle could be a lot longer and much larger because of the free cash flow of these companies. What also is appreciated, though, is we are moving AI, really, it's impacting every sector of the economy. Wat does this mean for other sectors tied to the enable of AI? I think many people when we reference AI are completely surprised to hear that industrials, energy, utilities, they're all tied to this theme. So maybe let's elaborate on that. Those interrelationships.

Dave Eiswert
Yeah, it's it's it's really quite fascinating and unexpected. I have to say that I'm I'm surprised. I mean, there are areas of the market, even in technology. I mean, I think if you take an area like high bandwidth memory, which is very important for the speed of AI computation, so DRAM is used in in high bandwidth memory. So two years ago, the COVID bubble in PCs and enterprise spend was massive and we built a massive amount of capacity in DRAM. And two years ago, if you asked me, I would have told you it will take five, six years to consume the overcapacity that we built. And what's fascinating to me is that in this two year period of ChatGPT, really, the beginning, right, or what the first manifestation, right, that we could really touch and feel of what AI was going to be. We have basically consumed all of that memory, and now we're in memory shortage because of the demands in AI. And and so that's really a shocking event for someone just in a short period of time and industry to go from massive overcapacity to shortage.

Let's step back, though, and think about some of the big discussions that people are having and diversified portfolio managers are having today. Is inflation falling or rising? No one really seems to know. The Fed doesn't seem to know. Right. And so, the current paradigm, right, is that COVID caused supply chain inflation and we're working our way through that. And we're seeing overcapacity in China. We're seeing used car prices plummeting. To your Uber example, in COVID, everyone shifted back to not wanting to ride in an Uber, and now it's okay because we feel more comfortable, you know, so you have these shifts that
happen. And so now we can see the inflationary environment ebbing from COVID and the Fed can see that. And we think, okay, we must be coming out of this. At the same time, my memory example for you is that we have DRAM, not only DRAM, we have DRAM and NAND prices rising, which is something no one would have expected. We have land prices in certain areas rising because that's where you need to put AI data centers. We see, you know, certain types of power generation being incredible demand, right? Non-carbon generating, you know, continuous power. We see industrial companies who had no
anticipation that backup power, or generating power would be in this kind of demand and had no capacity built for this, suddenly have order books that are extending out years.

So what, I'm what I'm saying is, the scale of this cycle is not just a scale that's isolated to technology, right. And tech companies, it is having implications on other industries. It's having implications on the energy markets, it's having implications on the industrial markets, on real estate markets. And you have to pars who is who is going to benefit and who isn't. So you have to think about asset allocation in a time where the market, at least into the last, we're you know, we're talking about this in April. The last few weeks, people were telling me, we're going to have five or six rate cuts this year. Right. And then you see in the last few weeks, you see people saying, wait a second, why isn't this happening? Why aren't we seeing the kind of deflation in other parts? So, what's super interesting is you're actually having deflation in cars, deflation in goods, especially coming from China. But inflation in certain other areas of the economy, inflation in in some some parts of real estate, energy, you know, components. And so, it's really sort of this fascinating shift. And what I would say to you again, is because people hate change so much, they're not really looking for these changes. Right. They they don't expect. It’s unexpected. And so the more quickly that you learn how the world's changing, that's actually you know why, why I'm excited right now, is because in the last frankly in the last ten years, the rise of these massive quasi monopoly companies all playing in their own lanes has just been very frustrating because it's in some ways it's taken away your ability to differentiate the winners and losers, right.

Jennifer Martin
Everyone got a trophy.

Dave Eiswert
Trophy for everyone, right? And I think what's so interesting about right now is, you know, we went through the dialectic. We went through the idea of contestable markets. Now we're talking about, hey, this is moving to other unexpected sectors and industries of the
economy. And you say - great, put me in coach. You know, now, now I can help the team win because I have different ideas about how this could play out.

In the last ten or 15 years we had zero inflation, oil coming out of the ground everywhere, zero interest rates, huge capacity for manufacturing in China. Right. So I think, you know, we haven't touched on this, but coming out of COVID, we're also experiencing, you know, a significant realignment of geopolitics, which, again, it plays into this mosaic, right. You have this innovation, you have this contestable market competition, right. You have this change in, in, in you know, before we talk about geopolitics, I guess you could say in the last 20 years, companies have kind of thrown their hands up and said, well, we'll never need more of this. Right. And you've seen industrial organization change.

Jennifer Martin Abundance.

Dave Eiswert
Abundance, right? So, exactly. So, that so that's we've talked about this what.

Jennifer Martin
That’s our favorite word unless it goes to scarcity.

Dave Eiswert
What we well well well you know we've talked about this, in the period really from the, a little bit from the tech bubble but really from the global financial crisis. You look at the world and you'd say we've gone from a scarce world, where things had value, energy had value. Energy is a good example, energy or commodities had value to a world of abundance. Where we have really low inflation, really low interest rates. And that's that's allowed us to just whenever we want capacity, we just add it. And that keeps inflation low and that keeps rates low and isn't this wonderful? We really went to, I think before COVID, we really looked at the world and said we've gone from scarcity to abundance and, you know, their implications of that, right. There are implications for wages, their implications for standards of living real incomes. There's lots of implications for that.

Post-COVID, you know, I think you see this in the AI food chain, but you're starting to see it to your point, in other areas, we really see this shift from abundance to scarcity. So that idea of moving from abundance to scarcity, right, really creates a different investing environment and the geopolitics plays into that, a more dangerous world, a higher risk premium put on natural resources, put on where do you manufacture, where do you build your supply chain, leads more to scarcity.

So, you know, I think as a diversified investor, Jennifer, when I step back, what's most interesting about today, it's not just whiz bang AI, right? But It's more than that, right. It’s more than that. It's the mosaic of all the changes that are playing into this. And really changing that playing field.

Jennifer Martin
And one thing that you've done very well is thinking about intersections, or you use the word vectors a lot. And one of the topics that we've been debating is how the U.S. federal Reserve might be under it, underestimating the implications of the AI investment cycle, because of the two opposing forces that they're evaluating. So maybe you could explain what that means.

David Eiswert
Yeah, I mean, I think the Fed is driving, look, I think the Fed has done, as good a job as you could do, right. You could argue they should have raised rates earlier. I mean, but, you know, we were in a crisis. And so I think in general, you know, it's a hard job.

I think one of the things that has really bailed the Fed out, and bailed the Fed out sort of, you know, 12 months ago really, was China, right, and the excess capacity in China. The changes in geopolitical relationships have led to really China in essence exporting goods deflation.

So, I mean, one of the things that China and Chinese deflation, and exporting of deflation allowed the Fed to do. They could slow their hiking. They could pause rates because they started to see this deflation coming in through the goods market. Right. And so China really helped in that sense, to, to, you know, lend the Fed a hand.

Now, the issue is, is that that's that's all fine and good that we've we've we've sort of embedded that Chinese slowdown. I think China is more likely than not to be stabilizing now. Right. So relying on China to continue to deflate the world, I think is a tough. Is it is it is it is a tough assumption because China needs to grow and China's policymakers cannot continue on this trajectory of GDP and inflation. So, relying on that to continue, and I think so I don't think the Fed is giving enough credit. So maybe in a sense, the Fed is taking too much credit for their hikes and not giving enough credit to China for helping to deflate the situation. And then I think the Fed is really skeptical of the AI cycle. I, I don't think they see it. They're not again, I think they're driving through the rearview mirror, and they are they are not giving enough potential credit. Now, again, I look, strong views lightly held. Right. So I'm I'm willing to change my mind if this turns out to not be true. But right now, what it looks like to me is that this AI cycle, contestable markets, no financing constraint. You know, the competition, the pace of innovation, the shortages of the supply chain and geography and power. Right. Is leading to an inflationary pulse. And that's really going forward. That's that's looking forward. That's prospective. Right. And the Fed keeps looking back and saying, oh it looks like that used car prices are coming down. It looks like that rents are stabilizing. It looks like China's exporting deflation. Great. Right. We're we're probably going to be able to cut rates this year and the market then says the Fed says they're going to cut rates, and so the market tries to front run that. And then meanwhile, from a bottom-up perspective, we see companies telling us we're in shortage of things, right. This idea again of scarcity and so, I mean, my guess is that as we move through the year, the Fed will continue to be surprised by the scarcity created by this cycle of AI and how it's seeping into other parts of the economy.

Jennifer Martin
And maybe also maybe add thoughts on global growth.

Dave Eiswert
And and thoughts on global growth. I mean, so, you know, that that equilibrium we talked about, the secular stagnation equilibrium, which I think Larry Summers really pushed in the period between the COVID and GFC. That basically said it's over, you know, it's over. We've reached the pinnacle.

You know, people, whatever time I think this is, when you step back and think about this, whatever time human beings live in, they kind of think they've done it all. The Romans built the aqueducts and they were like, nobody's going to top this, right? These are these are great. Right? And and today we look at AI or we looked at the Internet, right. Or cell phones, you know, Motorola Razr, you never beat that thing, right? I remember asking the CEO of Motorola, I covered Motorola as an analyst. I don't know, 20 years ago. And I said, what's next after the Razr? And he said, more razors. Right.

And if you think about how we we sort of assume we're at the pinnacle of things, but let's step back and think about the idea that we're not that there's a lot more to come, there's a lot more innovation to come. GDP growth is a function of productivity, right? How much how much product can a worker produce and the number of workers you have? Right. And I think the secular stagnation thesis is kind of, well, there's nothing we're not figuring out any new advances in productivity. Well, AI it seems to be at least calling that into question.

Right. And so you step back and you go, wait a second, so I'm more productive and I've got more labor hours, right? Because I've got a more productive, healthier workforce globally. Well, that that sounds like GDP growth to me. Right. And I think sometimes when you think about how these changes intersect and change the world, you at least should be open minded to that and, to the potential that we could have a very optimistic future. Right. I mean, there could be obviously, there are risks. We're all we all want to go into all of this eyes wide open. There's geopolitical risks. There's risks in and in what AI could turn into.
Right. And so we need to be cognizant of that and and take our time in how these things play out. Kind of addressing some of the some of the social ills that we have, even from an ESG perspective. Right. This idea of how we change health outcomes could have a really big impact on ESG, right. From a power generation perspective, the innovation that's going to go into generating power and figuring out power is very likely to help us become more efficient and more quickly get off of fossil fuels, Right. So those kind of things, we've got to be optimistic about how these these shocks and changes can lead to positive outcomes.

Jennifer Martin
Dave, I love ending on optimism. That's a great place to stop because we're going to be talking even more about the importance of AI in other episodes.

Dave Eiswert
Jennifer - This has been so much fun. Thank you for having me. It's always a pleasure speaking with you.

Jennifer Martin
On future episodes, we will be looking at how AI is helping to revolutionize areas of the economy outside of technology. We will also be talking about governance and AI's role in creating more sustainable environment in society. We hope you can join us.

If I were to summarize today's discussion, the three takeaways for me were that there are similarities in this AI cycle versus other cycles, in terms of infrastructure buildout, but this time because these companies are some of the most profitable companies in the world, there is very little debt associated with this buildout.

We also heard about how the cost of capital has been low for over a decade and natural monopolies grew up around globalization and digitization. Now, AI is increasing the cost of capital and allowing these natural monopolies to innovate and create products that is resulting in competition where none existed before. For the first time in many years, we have contestable markets. Finally, we talked about that AI is not all about tech, AI is infiltrating many other sectors.

Thank you for listening to the angle. We look forward to your company on future episodes. You can find more information about artificial intelligence on our website. Please rate and subscribe wherever you get your podcasts.

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This podcast episode was recorded in April 2024. This podcast is for general information and educational purposes only, and outside the United States is intended for investment professional use only.
It does not constitute a distribution, offer, invitation, recommendation, or solicitation to sell or buy any securities in any jurisdiction, or to conduct any particular investment activity.

This podcast does not provide investment advice or recommendations, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision.

The views contained herein are those of the speakers as of the date of the recording and are subject to change without notice. These views may differ from those of other T. Rowe Price companies and/or associates. Information is based upon sources we consider to be reliable; we do not, however, guarantee accuracy.

Investing in technology stocks entails specific risks, including the potential for wide variations in performance and usually wide price swings, up and down. Technology companies can be affected by, among other things, intense competition, government regulation, earnings disappointments, dependency on patent protection and rapid obsolescence of products and services due to technological innovations or changing consumer preferences.

International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments.

Growth stocks are subject to the volatility inherent in common stock investing, and their share price may fluctuate more than that of income-oriented stocks. Diversification cannot assure a profit or protect against loss in a declining market. There is no guarantee that any forecasts made will come to pass.

Free cash flow is the amount of cash available to a company after expenses and any long- term capital investments. Free cash flow margin compares the free cash flow to the company’s revenue.

Where "TMT" was mentioned, this references the TMT bubble, related to the rise (and fall) of Technology, Media, and Telecom (TMT) stocks in the period between 1995 and 2000.

Apple, Microsoft, NVIDIA, Amazon, Alphabet, Meta Platforms, and Tesla are seven tech companies that have come to be known as the Magnificent Seven.

The mention of "fablus infrastructure" refers to Fab's, which is where semiconductors are born. Fab is short for “fabrication”, which means to produce, and refers to semiconductor production facilities in the semiconductor industry.

DRAM and NAND are two different types of memories; DRAM (Dynamic Random Access Memory) is a type of random access memory, and NAND means NOT AND that is, AND output is NOTed. NAND gate is combination of an AND gate and a NOT gate. (Not AND) is a type of logic gate. Although they are both used to store data, there are many differences in construction, function, performance, and application.

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