Large Language Models Eat Up Big Electricity -- and Other Stories That Speak to Our Portfolio
Let's look at headlines that confirm our investment strategies such as the state of the consumer, AI spending and more.
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Amid the disrupted holiday week, we were busy scanning reports and headlines that speak to our Pro Portfolio, including stories about how many Americans are living pay check to pay check, the energy it takes to power AI searches, China's cybersecurity threat and more.
Artificial Intelligence
New survey research from leading global technology research and advisory firm Information Services Group (ISG) (Nasdaq: III ) finds enterprise leaders plan to increase spending on AI by an average of 5.7 percent in 2025, despite much more modest increases in overall IT budgets, and reinvest savings from cost optimization and productivity into AI-enabled transformation. Overall IT budgets are expected to rise 1.8 percent in 2025 – in line with inflation – but AI, security, applications and customer experience initiatives are seeing higher increases directed at strategic long-term investments…” Read more here
“While it is still early, our GenAI integrations have delivered exceptional results. So far, we’ve achieved an in-year return on investment for GenAI of more than two times,” Andy Markus, chief data officer at AT&T, told Fierce. “With 55 use cases currently in production, we also expect GenAI to contribute to our recently announced $3 billion in run-rate cost savings' goal over the next three years.” Read more here
The use of generative AI in finance is growing, with CFOs using the technology for higher-impact tasks. According to the report, the percentage of CFOs using GenAI for medium-impact activities jumped from 35% in March to 45% in June this year. Among the most common applications, over 60% of CFOs reported using GenAI for creating data visualizations and reports, which helps improve the clarity and accessibility of complex financial data… According to the report, nearly all CFOs surveyed — 98% of them — predict the technology will positively impact their industry over the next three years, particularly by accelerating decision-making. This is a significant increase from the 77% who shared this view in March. Read more here
Position: Elastic ESTC, ServiceNow NOW
Artificial Intelligence, Energy Pain Point
Researchers have estimated that a single ChatGPT query requires almost 10 times as much electricity to process as a traditional Google search. Your typical search engine crawls the web for content that’s filed away in a massive index. But the latest AI products rely on what are known as large language models, or LLMs, which are fed billions of words of text—from the collected works of William Shakespeare to the latest forecasts of the Federal Reserve… AI largely lives and runs in data centers humming with motherboards, chips and storage devices. The electricity demand from these centers is now outstripping the available supply in many parts of the world. In the US, data centers are projected to use 8% of total power by 2030, almost triple the share in 2022 when the AI frenzy took off, according to Goldman Sachs Group Inc., which has described it as “the kind of electricity growth that hasn’t been seen in a generation.” Read more here
Position: Eaton ETN, Marvell MRVL, Nvidia NVDA
Artificial Intelligence, Cybersecurity & Data Privacy
The share of chief operating officers (COOs) who report that their companies have implemented artificial intelligence (AI)-powered automated cybersecurity management systems has increased threefold since earlier this year. The increase brought the share of such COOs to 55% in August, up from about 17% in May… They are moving to proactive, AI-driven frameworks — and away from reactive security approaches — because the new AI-based systems can identify fraudulent activities, detect anomalies and provide real-time threat assessments. Read more here
Position: Elastic ESTC, First Trust Nasdaq Cybersecurity ETF CIBR
Bullpen: Broadcom AVGO, Cisco CSCO
Artificial Intelligence, Digital Infrastructure
Fierce Network spoke with Ciena's CEO Gary Smith who indicated that a lot of the positivity derived from all the activity around artificial intelligence (AI), which is bringing Ciena new business from service providers as well as cloud providers…“All the investment so far has been in the super compute cycle. But now, it’s rolling out of the data center and becoming traffic. It’s an opportunity for service providers to extract value from that,” Smith said. Read more here
Position: Marvell, Nvidia
Bullpen: Cisco
Cash-Strapped Consumers
As of November, 67% of consumers live paycheck to paycheck. In fact, this is the highest rate we’ve found since 2020. Even high-income households have felt the impact. Rising costs, inflation and static incomes are driving this trend. Furthermore, we find that one-quarter of consumers have experienced a downgrade in their financial lifestyle in the past two years. The results could have wide economic repercussions. For example, 94% of paycheck-to-paycheck consumers have changed their retail shopping behavior due to perceived price increases. Read more here
This season, 36% of American consumers took on holiday debt, according to a new survey from LendingTree. Those who racked up balances this season took on an average of $1,181 in debt, up from $1,028 in 2023. However, that is still down from $1,549 in 2022, LendingTree found. Less than half — 44% — of the people who took on debt expected to acquire those balances, a sign that this holiday season is still financially challenging for many people, according to Matt Schulz, chief credit analyst at LendingTree. Read more here
Defaults on US credit card loans have hit the highest level since the wake of the 2008 financial crisis, in a sign that lower-income consumers’ financial health is waning after years of high inflation. Credit card lenders wrote off $46bn in seriously delinquent loan balances in the first nine months of 2024, up 50 per cent from the same period in the year prior and the highest level in 14 years, according to industry data collated by BankRegData. Read more here
Position: Amazon AMZN, Costco COST
Cybersecurity
Chinese state-backed hackers have reportedly breached the Office of Foreign Assets Control (OFAC), a Treasury Department office that administers and enforces trade and economic sanctions programs…In a letter sent to Congress this week, the Treasury Department disclosed that Chinese government threat actors hacked its network in what it described as a "major cybersecurity incident" after breaching the BeyondTrust remote support SaaS platform. Read more here
Data-loss prevention startup Cyberhaven says hackers published a malicious update to its Chrome extension that was capable of stealing customer passwords and session tokens… the hackers compromised a company account to publish a malicious update to its Chrome extension in the early morning of December 25. The email said that for customers running the compromised browser extension, “it is possible for sensitive information, including authenticated sessions and cookies, to be exfiltrated to the attacker’s domain." Read more here
Position: Elastic, First Trust Nasdaq Cybersecurity ETF
Bullpen: Broadcom, Cisco
Safety & Security
Donald Trump’s team has told European officials that the incoming US president will demand Nato member states increase defence spending to 5 per cent of GDP, but plans to continue supplying military aid to Ukraine… At the same time Trump is to demand Nato more than double its 2 per cent spending target — which only 23 of the alliance’s 32 members currently meet — to 5 per cent, two people briefed on the conversations said. Read more here
Position: Lockheed Martin LMT
The Strategies Behind the Thematics Mentioned Above
Aging of the Population - Capturing the demographic wave of the aging population and the changing demands it brings with it.
Artificial Intelligence – Software, chips, and related companies that facilitate the collection and analysis of large data sets and autonomous generation of solutions given non-machine language prompts.
Cash Strapped Consumer - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.
Cybersecurity - Companies that focus on protecting against the penetration of digital networks and the theft, ransom, corruption or destruction of data.
Data Privacy & Digital Identity - Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
Digital Infrastructure & Connectivity -The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment.
Digital Lifestyle - The companies behind our increasingly connected lives.
Digital Payments - This model focuses on companies benefitting from the accelerating structural adoption of digital payments and financial technology (FinTech).
Energy Pain Point - Companies poised to prosper from rising power demand.
Guilty Pleasure - Companies that produce/provide food and drink products that consumers tend to enjoy regardless of the economic environment and potential long-term health hazards associated with excessive consumption.
Safety & Security – Targeted exposure to companies that provide goods and services primarily to the Defense and security sectors of the economy.
