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2024: Top 10 Gen AI Trends You Must Know When Investing in US Stocks

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Original production of Yonzai

Generative AI exploded in 2023 and quickly penetrated into people's lives. Compared to the boom in the C-side, AI is slowly moving in B-side enterprises.

IDC recently released its highly anticipated FutureScape report IDC FutureScape: Global IT Industry Forecast 2024It provides a compelling glimpse into the future of the IT industry and the critical role of artificial intelligence (AI). In this post, we'll explore the key highlights of this year's IDC forecast, highlighting that artificial intelligence will have a profound impact on the entire technology landscape and the way businesses operate.

This year's predictions focus on the emergence of artificial intelligence as a breakthrough inflection point in the field of technology. Although artificial intelligence is not a new concept, the GPT-3.5 series released by OpenAI at the end of 2022 acted as a catalyst, attracted global attention, and led to a surge in investment in generative artificial intelligence.

With this in mind, IDC expects global spending on AI solutions to soar to over $500 billion by 2027. This, in turn, will result in a significant shift in the allocation of technology investments to implement artificial intelligence and adopt AI-enhanced products and services.

Rick Villars, vice president of IDC's Global Research Group, summed up this transformative moment by saying, “Every IT provider will put AI at the heart of their business and invest money, brainpower, and time. This means not only technological advancements, but a major shift in the mindset of CIOs and digital-savvy executives. While the shift to artificial intelligence promises to bring a host of innovative AI-enhanced products and services, it also poses challenges, such as the proliferation of “now with artificial intelligence” options, which could lead to uncontrolled cost increases and loss of data control.”

IDC's FutureScape 2024 study focuses on the external factors that will reshape the global business ecosystem over the next 12 to 24 months and explores the issues IT teams face when defining, building, and managing the technology needed to excel in a digital-first world. To understand these predictions in more detail, let's explore IDC's top ten global IT industry predictions. AI will dominate absolute spending on the B-side:

Forecast 1: Core IT transformation — IDC anticipates that the shift in IT spending to AI will be rapid and dramatic, impacting almost every industry and application.By 2025, Global 2000 (G2000) organizations will allocate more than 40% of core IT spending to AI-related initiatives, enabling double-digit growth in the speed of product and process innovation.

Forecast 2: The IT industry's AI pivot — The IT industry will feel the impact of the AI watershed more than any other, as every company competes to launch AI-enhanced products/services and help its customers implement AI.For most people, artificial intelligence will replace cloud computing as the main driver of innovation.

Forecast 3: Infrastructure Unrest — Due to significant workload and resource shifts in enterprise and cloud data centers, AI spending rates for many enterprises will be limited by 2025.In addition to the uncertainty of silicon supply, there will also be flaws in networks, facilities, model confidence, and artificial intelligence skills.

Prediction 4: Big Data Scraping —— In a world where AI is ubiquitous, data is a critical asset that informs AI models and applications. Technology vendors and service providers recognize this and will accelerate investments in other data assets, which they believe will improve their competitive position.

Prediction 5: IT Skills Mismatch — Inadequate training in artificial intelligence, cloud, data, security, and emerging technologies will directly have a negative impact on the success of enterprises in their efforts to rely on such technologies. Underfunded skills programs will prevent 65% of businesses from getting full value from these technology investments by 2026.

Forecast 6: Services Transformation — GenAI will trigger a shift in strategy, transformation, and training for the manual delivery of services.By 2025, 40% of service projects will include support for GenAI delivery, impacting everything from contract negotiations to IT operations to risk assessments.

Prediction 7: Unify Control —— One of the most challenging tasks facing IT teams over the next few years will be managing the maturity of control platforms as they evolve from solving a few basic systems to a standard platform that coordinates operations across infrastructure, data, AI services, and business applications/processes.

Prediction 8: Converged AI —— Today's fascination with GenAI should not delay or disrupt existing or other AI investments. Organizations must consider, test, and put fully integrated AI solutions into production, so they can address new use cases and customer roles at a lower cost.

Prediction 9: Location Experience — The accelerated adoption of Gen AI will enable organizations to enhance their edge computing use cases through contextual experiences to better align business outcomes with customer expectations.

Prediction 10: Digital Frontier — Satellite-based internet connections will provide broadband everywhere, help bridge the digital divide, and enable a range of new capabilities and business models. By 2028, 80% of enterprises will integrate LEO satellite connections to create a unified digital service architecture to ensure flexible ubiquitous access and ensure data mobility.

IDC's FutureScape 2024 study presents the top ten predictions for the global IT industry, each pointing to specific technology trends and market opportunities. Here's a detailed interpretation of these predictions, along with the main opportunities to benefit and the types of companies likely to benefit under each forecast:

1. Core IT transformation:

projections: By 2025, the top 2000 global organizations will spend more than 40% of their core IT spending on artificial intelligence-related initiatives.

Benefit opportunities: AI technology provider, cloud service platform, and specialized AI application development company.

Beneficial companies: Amazon$Amazon (AMZN.US)$(AWS), Google$Alphabet-C (GOOG.US)$(Google Cloud), Microsoft$Microsoft (MSFT.US)$(Azure), NVIDIA$NVIDIA (NVDA.US)$etc.

2. AI fulcrum of IT industry:

projections: AI will become the main driving force for innovation in the IT industry.

Benefit opportunities: Technology companies that provide AI-enhanced products/services, and startups that focus on AI solutions.

Beneficial companies: IBM$IBM Corp (IBM.US)$, Salesforce$Salesforce (CRM.US)$, Adobe$Adobe (ADBE.US)$etc.

3. Infrastructure turbulence:

projections: By 2025, AI spending in enterprise and cloud data centers will be limited.

Benefit opportunities: Infrastructure vendors and network technology companies.

Beneficial companies: Cisco Systems, Juniper Networks, Huawei, etc.

4. Big data capture:

projections: Accelerate investment in other data assets.

Benefit opportunities: Data analysis and management platform provider.

Beneficial companies: Splunk, Palantir Technologies, Cloudera, etc.

5. IT Skills Mismatch:

Predictions:By 2026, 65% of businesses will be unable to derive full value from technology investments due to insufficient skills.

Benefit opportunities:A company that provides IT training and education services.

Beneficial companies:Coursera, Udemy, LinkedIn Learning, etc.

6. Service industry transformation:

Predictions:By 2025, 40% of service projects will include support for GenAI delivery.

Benefit opportunities:Consulting and service provider focusing on AI and automation.

Beneficial companies:Accenture, Deloitte, KPMG, etc.

7. Unified control:

projections: IT teams face the challenge of managing a mature control platform.

Benefit opportunities: A company that provides comprehensive management and monitoring solutions.

Beneficial companies: VMware, Red Hat, ServiceNow, etc.

8. Fusion AI:

projections: Organizations need to consider integrated AI solutions.

Benefit opportunities: A technology company that provides end-to-end AI integration services.

Beneficial companies: OpenAI, DeepMind, Element AI, etc.

9. Location experience:

projections: Gen AI will enhance edge computing use cases.

Benefit opportunities: A company that provides edge computing solutions and contextual experience services.

Beneficial companies: Fastly, Cloudflare, Akamai Technologies, etc.

10. Digital Frontier:

projections: By 2028, 80% of enterprises will integrate LEO satellite connections.

Benefit opportunities: Satellite internet service providers and related infrastructure manufacturers.

Beneficial companies: SpaceX (Starlink), Amazon (Kuiper), OneWeb, etc.

The above predictions suggest that artificial intelligence, big data, cloud computing, and edge computing will be key drivers for the IT industry in the future. As these technologies develop, companies in related fields will gain significant market opportunities. At the same time, it also points to the urgent need for technical education and training, as well as potential challenges in infrastructure and services over the next few years.

Morgan Stanley pointed out in a recently released report that although AI has received widespread attention from the industry, it has not had a “substantial impact” on spending. IT spending related to generative AI is low in 2023, but it is expected to increase significantly in the next few years: the Chief Information Officer (CIO) survey showed that investment priorities were affected by artificial intelligence, but spending was not substantial, 95% of respondents said there was no or very little impact on priorities, and 92% of respondents said there was no expenditure or less than 5% of the public cloud budget.

Although there are many uncertainties about the development of artificial intelligence, there is no doubt that corporate spending on AI will increase. Damo pointed out that AI will have an impact on the overall IT budget, and most of the expenditure will be reflected in cloud services:56% of CIO respondents expect AI to have an impact of 5% or more on cloud computing spending within 3 years (an average of about 7%, or $50 billion). There are signs that most of the increase in AI spending is in cloud computing, and more than 50% of CIOs expect some AI to be deployed locally or in the cloud, or a mix of the two.

It is worth mentioning that the slow conversion of B-side AI is due to the difference between the consumer technology cycle and the enterprise software adoption cycle. The consumer technology cycle may be fast, just like ChatGPT reached 1 million users in just five days;However, enterprise software replacement is often more cautious. This is due to the company's greater aversion to “friction,” more integrated and proprietary workflows, and higher customer retention rates, so existing software replacement cycles are longer, and adoption is slower as a result.

Looking further, companies are spending more on AI. Where will the capital come from in the future? Damo pointed out that part of the funding comes from reduced labor costs, and AI software vendors are expected to benefit from this process.

These expenses come from part of labor cost savings. By saving labor, software vendors can get $150 billion, but this only supports a 3% increase in the overall IT budget, accounting for about 15% of the software budget, so more budget is needed.

Based on the share calculation: 150 billion US dollars, accounting for 3% of the IT capex budget, then the overall IT capex budget is 50 billion US dollars; accounting for 15% of the software budget, then the overall software budget is 1 trillion dollars, and software accounts for 20% of the overall IT capex budget。

The total potential market (TAM) for generative artificial intelligence (GenAI) software is estimated in three scenarios:

Bear Case: $103 billion (2.5% penetration rate)

Base Case: $205 billion (5% penetration rate)

Bull Case: $410 billion (10% penetration rate)

As always, Yan Caijun is most optimistic about the big wave of AIGC. Yan Caijun is more fond of the core leaders in the US stock industry.

A few basic principles:

1. “Stay away from the noise of the market and focus on the fundamentals of the company.”

2. When considering investments in the AIGC sector, it is important to have a deep understanding of the potential of these technologies and how they will impact the future of specific industries and companies.

3. Investors should focus on companies with strong technical strength, clear business models, and sound financial conditions in the field of AI and global connectivity.

4. In the face of short-term market fluctuations, maintaining a long-term and strategic perspective is critical.

The net value of the portfolio reached a new high this week. More than a month after establishment, as of December 28, 2023, the portfolio return was 25.42%.

As always, Yancai is most optimistic about the growth stock investment wave driven by AIGC. I will continue to recommend investors to focus on the major investment opportunities on the AIGC circuit. At this stage, embracing the big wave of AIGC is still the best strategy for US stocks in the future. For details, see our previous article:

1.12-26 “Stone from Other Mountains: Citi's Most Optimistic Technology Stock in 2024"

2.12-21 “Abandon Resistance, Fixed Investment Index: One of the Most Complete Highlights of US Stock ETFs (Collection)”

3.12-18 “The huge difference in expectations for US stocks in 2024, these industries are the best”

4.12-15 “We must pay attention to this trend next year”

5.12-14 “Personally releasing pigeons to sell out, making a new profit”

6.12-13 “Burn! “The Lord Ascending Wave Has Arrived”

7.12-11 “The pattern will all be restructured: AIAgent has arrived, don't say it without saying anything”

8.12-6 “The data has finally cooled down, it's time to get up”

9.12-4 “An Era Not to Be Missed: Meditation, Innovation, and the Wave of AI”

Key Considerations:

1. Layout of Nasdaq Index ETFs: 159632, 159941, 513100, 513300, 513110

2. US Cyber Security and Cloud Computing ETF: CIBR/HACK/CLOU/SKYY

3. Long-term layout of long-term bonds: TLT/TMF (go three times longer)

4. AI application giants: NOW/CRM/ADBE/MSFT/META/GOOG

5. AI application dark horse: DDOG/MNDY/NET/CRWD/ZS/DUOL/PATH/GTLB

6. Autonomous Driving and AIOT: Tesla, Apple, Qualcomm, Intel

On Money January 2, 2024

$S&P Global (SPGI.US)$$S&P 500 Index (.SPX.US)$

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