Investing in the AI wave: what’s next?

Given the bouts of market volatility associated with AI names and Chinese startups challenging the West, is AI still an attractive investment space?

Richard Clode: I think DeepSeek managed to dispel some pretty lazy narratives, again, that China had no place in the AI world. But of course it does.

But I think also, some of the takeaways have been, again, misconstrued. I think the biggest takeaway was just how advanced the open source kind of ecosystem is. And that, you know, your business model is there to develop proprietary, AI models and then try and charge for them, good luck to you. And that, a lot of these techniques were already out there in the market.

So, again, I think DeepSeek did a great job of putting a lot of them together. But I think, you know, it just highlighted just know particularly on the reasoning side, there’s a distillation technique, a mixture of expert techniques. You know, a lot of things that are going to help drive the innovation of this technology, and ultimately drive it into our hands.

So I think we’re still early in the innovation curve. The innovations like DeepSeek are not going to be surprising. We’re going to get many more of them. But this is a good thing. This is going to take this technology where we need it to go, at a cost point that we need.

How does Google stay competitive, especially given that smaller firms are equally able to innovate?

Simon Kahn: This is an incredible innovation cycle. And so, rather than thinking about the short-term race, or the battle between one company or another, or one country or another, if you think about it sort of broadly and over the longer scale, the amount of innovation that’s happening in this space is just unprecedented, and we all benefit from it.

So the work that the major tech companies out of the United States, are doing, we’re absolutely going to learn from the techniques that DeepSeek can put into place. And we’re going to continue to grow. You’re also going to see and something that, I’ve told my teams quite a bit, you know, US$2 trillion companies are going to be, are being created right now as we speak. We don’t know what those US$2 trillion companies are, but they are being created, because of the innovation that’s happening in this space. I think for major tech companies, you know, one of the things that we look at is, we’re a full stack provider. And being able to play in all of those levels gives us the opportunity to build really foundational chips, make sure that our models are still at the frontier, and then plug into the reasoning and agentic work that’s happening, kind of leading the next wave of thinking about, AI.

And then, obviously, because you’ve got the reach and distribution with clients around the world, that gives us an opportunity, and gives other major tech companies an opportunity to continue to deepen their partnerships with their clients.

As a tech sector specialist, what are you most excited about as we move forward into the AI wave?

Richard Clode: Well, I think the opportunity from an investment point of view is going to broaden out. You know, I think, you know, when you think about investing in a new technology, I think what a lot of end clients think about is just buy anything to do with AI.

And I think what you’ve got to do is phase that investment, because ultimately you need to deliver the E of the P [in reference to PE ratio] you know, without the E, the P just goes up. You know, you have no foundation. That’s hot air. And ultimately the hot air can come out of the balloon as well. So unfortunately, for the last kind of two years, all of that E, incrementally has been going to one company. And what we really need to see is that E to start spreading out. I think that will happen in the next few years. I think within the infrastructure space, we still think there are opportunities there. On the custom silicon side, we’ve seen that Google has led the way there. But I think we’ll see that from every hyperscaler globally.

And then when we think about, you know, actually ultimately, us using that, we’re actually going to have edge devices that are going to be able to fully leverage a Gemini, or leverage an Apple Intelligence, or a Microsoft Copilot, or some of these agents. So again, we’re going to have to, you know, upgrade all of our devices, and that’s going to create a huge opportunity for us to be able to access new technologies and innovation that can do that.

And ultimately, this is all gets delivered out of the cloud. This is all about creating tokens. All of those tokens are probably going to be created in the cloud somewhere. And again, that creates opportunities on the cloud side for us to invest in as well. So many more opportunities for us to invest in and over the next few years.

What significant transformative AI use cases are we likely to see?

Simon Kahn: Well, I still think that there’s a huge case for productivity improvements, right? That’s the first one. That’s the entry one that everyone is aware of and talks about. We’ve seen that, across the board, in even the work, just the work that my marketing team does that we’ve cut down on creation of ad campaigns by two thirds, by just using simple AI tools in the creation of marketing briefs, and then copy, and then working with agencies. As an example, like in India, we turned around 2.5 hours of a live stream into ten second ads, 100 ten second ads. We did that in about 12 hours. And it was an incredible space of being able to move that quickly. And that would have normally taken us several weeks at best with an agency to create those digital social ads. So that’s a microcosm of what we’re seeing, certainly in our discussions with clients, they’re looking at customer service. They’re looking at better risk analytics. They’re looking at all of the different ways that they can insert that intelligence into their workflows to just make it faster. I think from a consumer standpoint, obviously homework that’s a huge use case for any of the gen AI products. And you are seeing, students do some really interesting things.

And so we do a lot of work now with educators to help them understand how best to use Gemini in their classes, because it’s like calculators back in the day. Everyone’s using Gen AI. So they need to adapt to that. But I think you’re going to see a lot more of that happening. I do think you also see, you know, we talk a lot about Gen AI, but AI it’s been around for a while.

And so if you look at things like Circle to Search or the way that we produce information, for search results, example, that’s all AI powered. And so I think you’ll just start to see more and more of that in your everyday usage. And it’ll be a bit like electricity. You won’t really think about that or care about it. You just will have a better experience using the products.

What are some new and exciting innovations that Google is now developing outside of foundational AI?

Simon Kahn: I think robotics is going to be a really interesting space. And China is doing an incredible job at doing robotics, interesting humanoid robotics at scale, at a very low price. So that’s a fascinating space. And I do think that you’ll see a number of different tech companies, big and small, go into that space.

Think about the aging society in so many parts of the world. This is the opportunity. Robotics becomes a really interesting opportunity. The other one that, obviously, I think most folks have known about, for us at least, is self-driving cars. And so Waymo has been, really on a tear in the last several months. We’re now I think in 96 cities in the United States. We just announced that we’ll be testing in Tokyo. And, you know, you are seeing a bit of a J curve here. We spent a long time testing in San Francisco and Phoenix, and now the adoption rate, and cities are feeling more and more comfortable with this. It’s accelerating. And that is a massive opportunity to help society, and obviously, provide a transformative technology to a number of different markets.

The last one, I would say, which is more AI-adjacent, is quantum computing. And that’s a space that we’ve been involved with for years and years. You’ve seen the recent announcement from Microsoft. So it’s another place where it’s not a three-year thing. It’s probably another ten-year thing before we see some real applications for it. But that’s obviously going to be a huge gamechanger.

What’s your thinking around investing in the tech space right now and the year ahead?

Richard Clode: I think there’s a few different areas. I mean, you can’t get away from AI, but I think within AI, you know, you need to be selective, you need to be even more selective on the infrastructure side, just given where capital spending has gone. You need to start pivoting a bit more onto the delivery mechanism of AI, which would be the cloud platforms, and then start thinking about some of those opportunities on the software and application side.

There’s going to be a whole host of new IPOs [initial public offerings]. And then you’ve got to think beyond that. And I think, you know, in many areas, you know, on the cyclical side, the stocks underperformed last year, AI semis did phenomenally well. NVIDIA did incredibly well. But actually everything else was terrible.

So you know there’s some great opportunities there, we think as industrials start coming back a little bit, and maybe helped a little bit by the robotics side in China. Autos has been terrible. But again that could start improving. And then just a lot of idiosyncratic plays, things that we use every day, I mean, some of the best performing tech stocks year-to-date have been Spotify, Netflix and Uber.

So you know, again that there’s a lot of opportunities set out there, that are well beyond AI. And again, the unifying factor is that these companies are going to make a lot more profit than the market expects.