Season 6, Post 45: On chips, cards and inevitably AI
No prizes for guessing which topic every Chief Executive will choose to talk about, given the chance. Two businesses in very different industries – ASML and Mastercard – hosted events for the investment community last week. Your author journeyed to Veldhoven in the Netherlands to attend the former’s and joined the latter’s online. Each gathering was illuminating in its own way, on the outlook for the semi industry and the payments market respectively, but the inevitable commonality related to the revolutionary potential of artificial intelligence.
“We’re not seeing a short runway from where I sit”, was the emphatic message shared by Mastercard’s Chief Executive, Michael Miebach. Only 25% of all consumer payment transaction volumes are done digitally today, according to Mastercard, with Germany, Italy and Japan as well as most of Africa called out as specific lagging market opportunities. The secular shift “starts with cash displacement” in Mastercard’s words. Think how easy it is to tap via a phone or scan a QR card. Imagine also the seamlessness of payment systems integrated into scaled digital public infrastructure, on transit networks, such as London’s underground. Digital content, subscriptions and services such as Uber create another significant opportunity. Further in the future an increasing number of utility or government bills will also be payable in all geographies via digital networks as opposed to by cheque or cash.
Mastercard’s contention that it is, “at [our] core, a data company”, seems hard to dispute. This may prove an advantage in the AI era. Differentiation lies in its deep experience with proprietary data, equivalent to more than 15 petabytes (in other words 1 million gigabytes – or an awful lot). AI is only as good as its underlying data, as we have consistently argued. For Mastercard, the technology can enable enhanced fraud protection, better payment pattern insights and more personalised consumer experiences. Expect further innovation.
Any innovation at Mastercard is, of course, going to be powered by semiconductors, somewhere in the background. In the small town of Veldhoven (profiled in a prior Blog post) sits, arguably, the most important business in the digital ecosystem. ASML might say modestly that it is “changing the world one nanometre at a time”, but the reality is that it retains an effective 100% market share in the design and manufacture of the extreme ultraviolet-powered lithography machines that make semiconductor chips.
ASML shared data at its investor event that it expects the total semiconductor market to grow at a 9% compound annual growth rate (CAGR) through to the end of the decade, making it worth over $1tr by 2030. While only modest (sub-5%) growth is anticipated for the consumer electronics, personal computing and smartphone semi markets, all the action in in the services, data centre and storage market, which is forecast to grow at an 18% CAGR through to 2030. AI to the fore, in other words.
19 November 2024
The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Heptagon Capital is an investor in ASML and Mastercard. The author of this piece has no personal direct investment in either business. 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
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