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.

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