Historical tech themes that created investing opportunities

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This week started off with the unexpected news over the weekend that DeepSeek, a Chinese start up, developed an artificial intelligence (AI) model rivalling ChatGPT with just US$6 million in capital. It was built with a smart workaround of technology because the export to China of the best GPU computer chips was restricted by U.S. administrators. DeepSeek engineers needed to make the less-robust chips work better. It looks like they succeeded, using a fraction of the computing power of their American rivals, and the whole world freaked out. The megabillions of dollars being thrown at AI data centres was suddenly called into question. Many stocks plunged on Monday. We can’t tell you how all this will play out. Certainly, it may change the direction of future AI spending. It may make AI devices faster, cheaper and more efficient. Your in-home robot butler just got a little closer to being delivered.

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Beyond the latest DeepSeek news, let’s take a historical look at some other technology, including AI itself, that has come to fruition and in the process created multitudes of investment opportunities.

Microprocessors

The development of the microprocessor, and semiconductors, truly advanced global technology. Suddenly, personal computers became commonplace, resulting in higher productivity and significant cost savings to customers. The world, and particularly North America, went from building things to becoming a service economy, with resulting loftier profit margins. Companies such as Intel Corp., which became the biggest semiconductor company in the world in 1992, saw their stocks soar. Intel stock rose 11 years in a row from 1989 to 1999, including a 95 per cent return in 1992 and a 132 per cent return in 1996. International Business Machines Corp. (IBM) was another big winner from this trend, though not to the same degree.

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The internet

This development is likely much more widely known, since everyone uses the internet now. We know about the dotcom days and how nearly every company in the world was scrambling to make sure they got a piece of the internet action. Certainly, the ‘net helped companies drive costs down and it opened up the entire world as potential customers. Amazon.com Inc. is the poster child of stocks in this era, with a 966 per cent gain in its stock in 1998. It then crashed hard (80 per cent) in 2000, but is up about 250-fold since then.

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Smartphones

You probably have realized by now how hard life would be if you didn’t have a smartphone. Boarding a plane? Reading a menu? Ordering a taxi or Uber? Looking for directions? Reading the newspaper? Signing forms? Good luck with that. Essentially, smartphones combined the power of processors and the internet and turned your phone into your own personal assistant, mobile encyclopedia and best friend. The smart phone set off entire industries of companies serving the sector, from app developers to all those kiosks in the mall selling phone covers. You know the company we are going to mention here, of course: Apple Inc. After the recession in 2002, Apple shares went on a 12-year tear, only declining once (46 per cent in 2008) and the company saw its stock rise from 25 cents (split adjusted) to $28 in 2014. It has, of course, increased nearly 10-fold from that level as well to today’s price.

Google

Yes, we are going to single out a specific company here as a tech development. Tied of course to the internet, Google (now a division of holding company Alphabet Inc.) simply made the internet more usable for the world. I remember being frustrated by internet searches back in the day, and a co-worker urged me to use Google. I had never heard of it before, but suddenly the internet was there in all its glory, ready to be discovered. Google searches became so useful and pervasive that the company itself became a verb: “Just Google it,” your friends would say. Since its early days, of course, Google (I don’t think I will ever call it Alphabet) has transformed into a corporate behemoth. It has used its massive cash flow (US$105 billion annually now) to develop new products and services and/or buy all sorts of companies and products and services. It is now about a US$2.4 trillion company. It’s hard to believe that Alphabet has only been public for less than 21 years. Shares have gone from US$4.80 to about US$195 since their debut in 2004.

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Artificial Intelligence

AI went mainstream in 2022 with the launch of ChatGPT. Suddenly, AI assistants could churn out entire reports on topics, write essays for students, set up vacation plans, write software code and create videos and graphics. AI usage has started to creep into everyday life, from call centres to drive-through restaurants, internet searches and data analysis. We are not quite at the home-robot stage, but we are certainly getting closer. The dawn of AI is probably a bigger technological advancement than the internet. Of course, it can’t happen without the internet, where AI gets all of its data. Again, you know the poster child of this development. Nvidia Corp., which produces the GPU chips that run AI programs, has seen its shares go from less than US10 cents in 1999, to hitting about US$129 this week. Will DeepSeek change its direction? Only time will tell, but it certainly took a big hit when the DeepSeek news came out.

Peter Hodson, CFA, is founder of 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)

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