Ryan Quinn, Client Portfolio Manager at WCM Investment Management (WCM), explains how WCM separates the real AI winners from the companies riding the hype.
As part of the WCM Quality Global Growth Strategy, WCM undertakes deep research to identify companies with a strong competitive advantage or “moat”, and an equally strong company culture that can keep it growing. With artificial intelligence (AI) now attached to almost every corporate story, that same discipline is what WCM leans on to tell a durable AI business from one that is just caught up by the hype machine.
Ryan says the starting point is to stay realistic about what a company actually does. He puts two questions to any business caught up in the AI wave:
- does it have real competitive advantages, and
- are those advantages protected by a moat?
He points to Taiwan Semiconductor (TSMC) as an illustration of what a durable answer can look like.
Quinn notes a significant backlog of demand running through TSMC’s fabrication facilities, drawn from a diverse set of customers, which he says leads to pricing power.
In his view, the length of time those earnings can keep growing is what matters most when weighing a company today. Quinn describes memory as a potential bottleneck inside the AI machine: vast amounts of it are now in demand thanks to the surging rise of generative assistant tools. He adds that only a handful of players can produce the memory these data centres need, which is impacting pricing for components, growing the competitive moat of suppliers like TSMC.
He acknowledges that some companies are getting overhyped on the promise of artificial intelligence. WCM’s approach, he says, is to sniff those names out quickly and “avoid them at all costs”.
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