AI's Not in a Bubble w/ Dr. Ankur Crawford

Summary

In this insightful discussion, Dr. Aner Crawford from Alger Management shares her expertise on market trends, particularly the potential of AI and big tech companies. She emphasizes AI's transformative impact, refuting claims of a bubble and highlighting the technology's early stages. Crawford discusses the concentrated Equity ETF, which focuses on high-growth companies with pricing power or unique business models. She also addresses the importance of understanding macroeconomic factors and the role of active management in portfolio construction, offering insights into the future of technology investments.

Takeaways

• 😀 Dr. Aner Crawford from Alger Management discusses her views on the market, AI, big tech, and their Concentrated Equity ETF.
• 🔍 Dr. Crawford appreciates the importance of macroeconomic factors like rate cuts but emphasizes the market has already anticipated these changes.
• 📉 She suggests that market movements are fundamentally driven by company performance and economic indicators, not just macroeconomic policy.
• 🤖 AI is considered by Dr. Crawford to be in its early stages, with the potential to exponentially increase innovation by enabling software to write software.
• 🚀 Dr. Crawford believes AI's current state is undervalued, and future versions could significantly boost productivity and create substantial ROI.
• 💹 The Concentrated Equity ETF (CNQ) focuses on companies with promising growth potential, including oligopolies with strong pricing power and those driving industry change.
• 💼 Dr. Crawford sees big tech companies like Microsoft, Meta, and Amazon continuing to lead the AI revolution and not being overvalued despite market sentiments.
• 💵 The ETF offers a waiver on expenses until the end of 2025, making it more attractive to new investors by reducing their cost burden.
• 🌐 Crawford predicts significant capital expenditure in areas like data centers and edge computing due to the growing importance of AI and its applications.
• 📈 For investors seeking growth, companies with unique business models, pricing power, and the ability to create free cash flow are ideal, which the Concentrated Equity ETF aims to provide.
• 🔗 The interview concludes with Dr. Crawford's belief that the public underestimates AI's potential impact on the world, including geopolitical and economic aspects.

Q & A

What is Dr. Aner Crawford's perspective on the current market and the influence of macroeconomic factors such as rate cuts?

Dr. Aner Crawford believes that while macroeconomic factors like rate cuts are important to be aware of, they should not dictate day-to-day investment decisions. She emphasizes that the market has already anticipated rate cuts, and the key is understanding how much the Fed needs to cut, which is tied to economic fundamentals like GDP growth and the potential for a soft or hard landing.

Why does Dr. Crawford think that AI is still in the early innings despite some people considering it a bubble?

Dr. Crawford views AI as a fundamental shift in computing technology, leading to exponential innovation. She believes that AI's potential is vast, with the possibility of creating digital versions of ourselves that can enhance productivity. She argues that the current AI applications are just the beginning, and future versions will offer significant productivity gains, making the current investments worthwhile.

How does Dr. Crawford respond to the idea that AI investments have no ROI currently?

Dr. Crawford counters this notion by pointing out that AI is in its infancy and the current productivity gains, even if small, are just the beginning. She gives the example of how AI can reduce response times and improve efficiency, which already shows a significant ROI. She suggests that as AI evolves, the productivity enhancements will become more substantial.

What is Dr. Crawford's view on the role of big tech companies in driving the market and AI?

Dr. Crawford sees big tech companies as the drivers of the AI revolution. She believes that companies like Microsoft, Meta, and Amazon, with their cloud services and AI applications, are well-positioned to lead the change. She thinks these companies are not overvalued and have room to grow, as they are investing in AI to create new business models and platforms.

Can you explain the concept of the concentrated Equity ETF as discussed by Dr. Crawford?

The concentrated Equity ETF, with the ticker CNQ, focuses on companies with promising growth potential. It holds between 20 to 30 names, seeking businesses that are either changing their industries or have unique positioning within them. The fund is non-diversified, allowing for significant variation in position sizes relative to the benchmark, and is actively managed to capitalize on growth opportunities.

Why did Alger Management decide to offer a waiver on the concentrated Equity ETF's expenses?

Alger Management offered a waiver on the expenses for the concentrated Equity ETF to alleviate the burden on new investors due to the fund's current sub-scale size. This waiver ensures that the initial investors are not disproportionately affected by the expenses typically associated with a young fund.

What type of investor does Dr. Crawford believe would benefit most from the concentrated Equity ETF?

Dr. Crawford suggests that the concentrated Equity ETF is suitable for investors seeking growth in companies that have the potential to grow faster than the market and possess pricing power and unique business models. It is ideal for those who understand the fund's non-diversified nature and are interested in Alger's expertise in growth investing.

What are the key trends Dr. Crawford predicts will impact investors over the next decade?

Dr. Crawford identifies AI as the most impactful trend for the next decade. She anticipates significant capex spending in areas like data centers, optical networking, and edge computing as the world becomes more AI-driven. She also highlights the potential geopolitical implications of AI dominance and the rapid pace at which AI could evolve.

How does Dr. Crawford address concerns about hyperscalers potentially reducing spending on AI and the impact on Nvidia?

Dr. Crawford dismisses concerns about reduced spending on AI by hyperscalers, arguing that the potential for AI to create significant value, such as digital agents that can perform tasks more effectively, justifies ongoing capex. She believes that the end goal of AI monetization is much higher than current capabilities, necessitating continued investment, and thus, companies like Nvidia will continue to thrive.

What is the significance of the non-diversified nature of the concentrated Equity ETF according to Dr. Crawford?

The non-diversified nature of the concentrated Equity ETF allows for greater flexibility in portfolio construction, as it is not bound by the 40 Act rules that limit position sizes in diversified funds. This enables the fund to take larger positions in its best ideas, potentially leading to higher returns, but also comes with higher risk due to the concentration in fewer names.