India's Potential Nvidia-Like AI-Multibaggers 

A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing over the next few years.

Why?

Because companies globally are racing to apply generative AI into every product, service and business process.

At the heart of this transition are companies like Nvidia.

Nvidia has its roots in graphics-processing chips for video gamers, but has diversified its customer base rapidly over the years.

The semiconductor chips produced by Nvidia were found to be well-suited to AI tasks and cryptocurrency mining, which led to an explosion of new sources of demand.

Nvidia has tried to capitalize on that shift by making specialized chips for those markets. Its AI chips have helped its data center division surpass its gaming division in revenues over the past few quarters, a major break from the past.

The company has recently begun to roll out a new generation of AI chips for data centers that promise a substantial performance upgrade.

Also, Nvidia doesn't manufacture its own chips, but contracts out production to chip-makers including the world's largest, Taiwan Semiconductor Manufacturing Company.

But the company does retain the core technology and design aspects of chip manufacturing. Nvidia has said it is working on generative AI with tech behemoths Amazon, Microsoft and Google, and is partnering with cloud-computing companies to help make generative AI available to smaller businesses.

Needless to say the global attention on AI related wealth is centered on the stock of Nvidia.

I referred to Tata Elxsi as a credible AI stock in 2019. Back then, I had to literally explain the term 'artificial intelligence'.

Since then, the acronym AI has become so common that even school going kids can today educate you on the utility of AI. Especially thanks to ChatGPT.

AI has caught the fancy of tech behemoths, large manufacturers, startup entrepreneurs, governments, professionals and students alike.

Infosys is not the only company in India with commitment to invest over a billion dollars in AI. Even your favorite pizza delivery company claims AI to be its next gamechanger.

The term AI has in fact taken the stock markets globally by storm.

When American AI company Nvidia crossed a trillion dollars in marketcap, earlier this year, everyone sat up and took notice.

And since then, every management makes it a point to pepper their replies to queries in quarterly result conference calls (with analysts) with the term AI.

Now, AI is not a completely novel concept.

Several mathematicians, scientists and philosophers in the US were exploring theories and concepts of AI by the 1940s.

However, only in February 1996 did the relationship between humans and Artificial Intelligence change forever.

One of the first AI construct, Deep Blue, a supercomputer developed by IBM, defeated a reigning world champion Garry Kasparov in a formal chess match.

It was a pivotal movement that would pave the path for a future consisting of both AI and humans.

So, should investors in India wait for the next Nvidia? If so, what should be the hunting ground?

When I say India's Nvidia, I do not mean a trillion-dollar stock. Rather I mean stock of a cutting-edge homegrown AI company that helps millions of Indian business ride the AI wave.

Well, falling prey to the AI hype in a bull market can be easy.

A veteran investor, Mohnish Pabrai, recently warned about this.

Mohnish Pabrai

When was the last time you heard of an outperformance of 474% over a decade?

Mohnish Pabrai's long-only equity fund achieved this feat versus the benchmark S&P 500 in the first decade since inception in 2000.

Being one of the most well-known Buffett disciples, Pabrai's fund did not have a large technology exposure for long. But then he started buying American digital storage and semiconductor chipmaker Micron Technologies in 2018.

The stock comprised 79% of his portfolio by 2022.

Having that kind of exposure to a stock requires an immense degree of conviction and deep understanding of the business model.

So, when Pabrai recently compared valuations of Nvidia to Microsoft of 2000, I took notice.

Pabrai was categorically disapproving of Nvidia trillion-dollar market cap.

He explained that even a healthy future cash flow stream over 10 years cannot justify its current market cap.

No doubt the current valuations of Nvidia can be attributed to excessive greed in the stock markets. After all, the sentiments in equity markets vacillate a lot between fear and greed. But to compare Nvidia's fate with that of Microsoft in the early 2000s is a stern warning.

Pabrai believes that chasing Nvida like AI behemoths at steep valuations may not fetch meaningful returns for long.

But rather taking indirect exposure to the AI upside can be meaningful and safe.

Turns out one of the largest fintech companies in India has recently taken a majority stake in a purely play AI company.

The latter was one of only five Asia-Pacific firms that were named in the 2023 edition of AIFINTECH100 list. This is a list of 100 of the world's most innovative AI solution providers for the financial services industry.

Thanks to some near-term market share concerns, both the company and its AI exposure currently trade at discount to intrinsic value.

So, as long as you get to ride the decadal upside in AI, safely, do not look for the next Nvidia.

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