The Industry 4.0 Arms Race Continues 


March 20, 2019

China is making a massive investment push into artificial intelligence (“A.I.”) and cloud computing, and has said very openly that it wants to lead the world in A.I. by 2030.

The United States will not sit idly by while this happens. The new Industry 4.0 technology arms race to “build the infrastructure that will meet the computing needs of the era of artificial intelligence and Internet of Things” is on – and is just getting going. It’s not just about smart gadgets; it’s also a matter of national security. In this new world, power may come from organizing and controlling data, and using it as influence. The power of a strategic breakthrough in A.I. or quantum computing could have deep ramifications from a geopolitical standpoint. Think of what’s happening as an urgent need that is a priority for both private companies and nations.

The key to moving forward in these areas is hardware – and chipsets are at the heart of the process. In fact, it’s quite possible that at some point every chip will have an embedded A.I. capability. What is also important is creating chipsets that are appropriate to the level of the computation needs for each application – not too fast, not too slow, not too expensive and not running too hot. This is leading to a kind of specialization in chipsets. NVIDIA Corporation (“NVDA”) is leading the revolution in deep-learning chipset manufacture.

NVDA hit a rough patch in late 2018 with cryptocurrency sales plunging and its latest gaming processor sales soft. But in my view, that is a distraction. What matters are trends with staying power, and NVDA is a key player in those trends. Despite these small hiccups, A.I. and cloud computing (datacentres) are big focus-areas for NVDA. The company just bought Mellanox, an Israeli chip-maker whose products improve datacentre connectivity.

What are the challenges in the area of large datacentres? Central processing units (“CPUs”) just aren’t competent enough. Moore’s Law is breaking down because they simply can’t fit any more transistors on a chip. Datacentres are overwhelmed due to A.I. and machine-learning-data-crunching needs. That’s where NVDA and Mellanox come in. NVDA makes graphics processing units (“GPUs”) and Mellanox allows multiple computers to efficiently work together – effectively creating a “mega-datacentre”. Together, NVDA and Mellanox power more than half of the world’s Top 500 supercomputers. I believe NVDA will use this acquisition to further dominate an increasingly important area of the data-management business.

NVDA is forging ahead in areas that are incredibly strong – including the server market which accounts for about one-third of their sales (and counting). I think cryptocurrency woes will soon be a fading memory and trends with staying power will once again be the focus. After having been sold off in recent months, NVDA is on sale now and remains a big potential upside contributor to RBOT and FOUR.

The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

Share This Article

Next article

Go for the Gold

Horizons ETFs is a Member of Mirae Asset Global Investments. Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. (the "Horizons Exchange Traded Products"). The Horizons Exchange Traded Products are not guaranteed, their values change frequently and past performance may not be repeated. The prospectus contains important detailed information about the Horizons Exchange Traded Products. Please read the relevant prospectus before investing.

The Horizons Exchange Traded Products include our BetaPro Products which consist of our 2x Daily Bull and 2x Daily Bear ETFs ("2x Daily ETFs"), Inverse ETFs ("Inverse ETFs") and our VIX ETF (defined below). The 2x Daily ETFs and certain other BetaPro Products use leveraged investment techniques that can magnify gains and losses and may result in greater volatility of returns. These BetaPro Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, which, where applicable, are described in their respective prospectuses. Each 2x Daily ETF seeks a return, before fees and expenses, that is either 200% or -200% of the performance of a specified underlying index, commodity or benchmark (the "Target") for a single day. Each Inverse ETF seeks a return that is -100% of the performance of a Target. Due to the compounding of daily returns, a 2x Daily ETF's or Inverse ETF's returns over periods other than one day will likely differ in amount and, for the 2x Daily ETFs, possibly direction from the performance of their respective Target(s) for the same period. The BetaPro Product whose Target is the S&P 500 VIX Short-Term Futures Index™ (the "VIX ETF"), which is a (1x) VIX ETF, as described in the prospectus, is a speculative investment tool that is not a conventional investment. The VIX ETF’s Target is highly volatile. As a result, the VIX ETF is not generally viewed as stand-alone long-term investment. Historically, the VIX ETF’s Target has tended to revert to a historical mean. As a result, the performance of the VIX ETFs' Target is expected to be negative over the longer term and neither the VIX ETF nor its Target is expected to have positive long term performance. Investors should monitor their holdings, as frequently as daily, to ensure that they remain consistent with their investment strategies.

*The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The rates of return shown in the table are not intended to reflect future values of the ETF or returns on investment in the ETF. Only the returns for periods of one year or greater are annualized returns.