Season 6, Post 32: Postcard from America

Your author is just back from a short trip to the US. During his time there he met executives from businesses operating in sectors as diverse as semiconductors, water solutions, grid infrastructure and life sciences as well as appearing on Nasdaq Trade Talks and visiting America’s first robot-operated quick service restaurant (more on this latter topic next week). Up and down the East Coast he also had the opportunity to observe the state of the nation, feeling the vibes on both the economy and the election.

Walk down Manhattan’s Fifth Avenue and there was zero evidence of a slowdown in consumer spending. Tourists and locals were out shopping in force. The restaurants of both New York and Washington DC were packed with several not even accepting walk-ins. Whether the outcome of the November 5 Presidential Election will change these trends remains to be seen. Most people with whom your author spoke seemed reluctant to be drawn on either the result (“it’s a coin toss” was the consensus opinion) or its implications. Clearly being President is only necessary for shaping the country’s direction, but far from sufficient. Practical policy actions will ultimately be defined by the formation of the Senate and the House too. A ‘red sweep’, or Republicans controlling all three parts of the legislature, was seen by many as potentially the most destabilising outcome for business continuity.

Onto future trends and the two topics that recurred with regularity in almost every meeting were artificial intelligence and the country’s power shortages. Both are interconnected (no pun intended). Begin with the former. It was pointed out to us on more than one occasion that the near-term potential of AI was being over-estimated, while the longer-term opportunity was similarly being under-estimated. “We’re just scratching the surface of what’s possible” was a common turn of phrase. Some cited relatively trivial use-cases such as automating scripts for earnings conference calls or legal departments being able to draft generic contracts. Perhaps the most tangible example we heard was from a contract logistics business who said that once they had applied AI to a certain warehouse solution, productivity had increased by 400%. While this may be a very specific example, it does speak to the potential of the technology.

Perhaps it’s a good thing that practical AI applications are only taking off slowly as the US energy grid is already struggling to cope with existing demands. We covered this topic in a recent Blog post, but a torrential storm in New York and New Jersey last week (which your author fortuitously just missed) served as a potent reminder of just how fragile existing infrastructure is and hence correspondingly exposed to power outages. Forget AI for a moment. Add growing base-load grid demand and digital transformation (cloud and SAAS) together and no surprise that more than 90% of US utilities are currently increasing their grid capex. This anecdote was shared with us by the Chief Executive of a leading player in the space. Who else benefits? One good place to look would be solar. It’s a cheap source of energy and fast to install. Further, almost every hyperscaler is committing to net zero. Sunny times ahead, at least for parts of America.

21 August 2024

The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.

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Alex Gunz, Fund Manager