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Key Points
- The best global growth story around the globe is not in the U.S., it’s in Asia.
- The single largest theme for growth opportunities is Artificial Intelligence.
- E-Commerce & AI are now attached at the hip.
Asia Growth.
With the conflict between the U.S. and China set to increase and stay fluid for many years to come, I thought it was important to talk about why we think Asia is a key growth driver for the world. Because of this, we also feel compelled to connect the dots for investors back to making sure they have enough exposure to the enormous theme of Asia/China tech, E-commerce, and artificial intelligence. As we sit here in the U.S. it’s easy to believe every road starts and ends with the United States but with 320 million people, the U.S. has the largest GDP in the world but only has a fraction of its population. We have decent demographics with Millennials and Gen-Z just beginning their spending cycles but when you look to a region like Asia, we see a major opportunity for investors. As of 2020 Asia has a population of roughly 4.6 billion people. That’s about 60% of the world’s population in one region. It’s no wonder that global brands are so focused on making inroads into Asia; the opportunity for sales growth is enormous. There are now more millennials and Gen-Z people in Asia than the entire population of the U.S. They are young, mobile obsessed, digitally focused, brand focused, and are premium shoppers. Asia is truly the most robust investment opportunity for a brands-focused investor.
Artificial Intelligence
To invest there, we must understand their culture and where they are focused from an innovation perspective. I just finished reading quite possibly the most interesting book I have ever read. It’s called AI Superpowers – China, Silicon Valley, and the new world order by Kai-Fu Lee. Dr. Lee is one of the worlds most respected experts on AI and China and reveals how quickly China is becoming the world’s AI super-power. This book highlights the significant advantage China has over the U.S. in Artificial Intelligence. How? The Chinese Government supports, invests in, and is committed to China becoming the dominant force around the world. China plans to build a $1 trillion AI industry by 2030 and they play the long game. One of the other key reasons China has a big advantage over the U.S. is the sheer amount of data they can collect from over 1 billion of their citizens. In the U.S., we covet our personal data but in China, the government tracks every move its citizens make. Like it or lump it, China is arming itself with the critical data required to arm its AI engines with the fuel they need to think and act on our behalf.
Artificial Intelligence is disrupting every industry. It’s an unstoppable force. There will be winners and lots of losers so every company and every citizen should be thinking about this major theme when making career decisions and investment choices. In an attempt to improve productivity, enhance financial operating results and do more with less, companies across industries are implementing forms of AI across every business line. I even saw a restaurant ad for a robot making the perfect hamburger. Granted, I’m not excited about the thought of humans being replaced by robots and machine learning with big data taking over our lives but it’s simply inevitable. The AI story is in inning number one and there will be many winners so it is not too late to begin thinking about which companies could be the big winners over the long term as this thesis plays out. For now, the AI industry is expected to grow from $16.2 billion in revenues to roughly $31 billion by 2025 (Source: Robo Global). In my opinion though, these numbers are vastly understated when you think about the size of global GDP at roughly $74 trillion per year and the fact that AI will tough most industries rolling up to this massive GDP level. With China’s goal of $1 trillion AI industry you can see how understated these numbers really are.
AI & E-commerce are attached at the hip – here are some winners.
AI is already everywhere. From your iPhone, MAC or Android phone finishing the sentence you are typing and correcting your spelling automatically to the iRobot in your home sweeping the wood floors to the suggestions you get for follow-on products you might find interesting when you’re using Amazon or Spotify, this is just the beginning. There are many companies that are part of the supply chain of AI so one could endeavor to build a dedicated allocation to this theme or it can be a part of your overall asset allocation via other funds and ETF’s. In the Brands strategy, the theme of AI and machine learning is a key focus of our long-term investing portfolio. Here’s a few of the leaders though there are many:
- Amazon – Web Services, Consumer Services. Do you have an Alexa? I know some people have a problem with a tech device learning from our behavior but personally, I have no secrets to hide and I love devices that think about and deliver what I need before I even think about it. I’m happy to help automate my life so I can be more productive at work and with my family time. AWS integrates massive amounts of AI and machine learning to help corporate clients using AWS. Unfortunately, Amazon has little exposure to Asia. Why? Asia wants its own brands to be the dominant brands of China and Asia.
- Alibaba – If Apple, Microsoft, Google, and Amazon can reach the $1 trillion market cap club, I feel confident China’s most relevant brands will also reach this milestone given the addressable market they are focused on. Alibaba connects importers and exporters through various online e-commerce platforms making it the world’s largest e-commerce marketplace. They have a vast venture arm of investments in AI and other important technologies. Similar to Amazon Prime day or week, Alibaba’s Singles Day is all AI-powered and their algorithm’s help recommend products to shoppers while instantly communicating with retailers to keep their inventory up to date. They have chat-bot’s that handle customer service inquiries and some serve >3 million consumers per day. Alibaba is helping to create “smart, digitally wired stores”. City grids are being wired to become “smart cities”. All of this digitization generates massive amounts of data that can be analyzed and utilized to predict outcomes before humans could do the same analysis. The reality, at least in China and spreading to Asia, retailers that do not embrace digitization will not survive. Again, I’m not loving that machines and technology are replacing humans but this is a wave that is unstoppable so we all need to learn how to survive and adapt for what’s coming everywhere around the globe.
- TenCent – TenCent is another massive brand in China. They could likely be the largest investment company in the world as well given the >400 stakes they have in businesses all over the world. They own stakes in some U.S. brands: Tesla, Activision, Snap to name a few. TenCent hosts >60% of China’s mobile internet usage on its combined platforms (source TenCent). The company is China’s largest social network with over 1 billion users on its WeChat app. The stock recently got hit on the news from the Trump Administration trying to block U.S. citizens (primarily Asians living in the U.S.) from using the app due to perceived security concerns. In my opinion, investors need to ignore the noise and take advantage of periods of weakness. If you’re in China, you literally can’t transact without using WeChat, the app is embedded in everything its citizens do on a day to day basis. Because of this, TenCent also is collecting massive amounts of data that can be used to predict habits and push more products and services. TenCent is spending a massive amount of money and time on machine learning, speech recognition technology, computer vision, natural language processing. All of these endeavors help them dominate the video gaming industry globally and create on-demand content for consumer and businesses. The revenue opportunities for those that focus and endeavor to lead in the AI race seems mind-boggling. As an investor, I want in!
Summary
Here are some key takeaway points for investors:
- The brands that make strong and sustainable in-roads into Asia have enormous opportunities.
- Artificial Intelligence and the use of massive amounts of data is an unstoppable force.
- There are others but Amazon, Alibaba and TenCent and three brands that seem well positioned to dominate in the AI revolution.
