Market Commentary

Tech Leaders

By Rob Sigler, MBA

January 30, 2025

At Morgan Stanley, I had the privilege to work with Mary Meeker, a brilliant equity analyst who has since gone on to found her own venture capital firm, BOND.  While at Morgan Stanley, she published the first “Internet Report” and it quickly become the navigational guide used by all investors traversing the emerging dot.com field.  I recently came across a great JP Morgan Asset Management illustration whose subject was borrowed from that very report.  Meeker correctly deduced that technology innovation cycles often yield different winners.  Legacy providers often don’t recognize the change afoot or are slow to migrate their businesses.  The result is that technology leaders infrequently stay leaders.  As you can see in the following illustration, the composition of the top 10 largest technology companies changes dramatically over time (bolded names are new to the list).  The 1990s decade saw seven newcomers to the top ten, 2000 scored eight, 2010 witnessed five, and 2020 notched six.

Why do I bring this up?  A Chinese startup company, DeepSeek, shocked the world this Monday unveiling an AI model that claims to outperform ChatGPT while being constructed and “trained” for a fraction of the cost and time.  I think this is a bit of wake-up call.  Investors have become blinded by the success of the Magnificent 7 and have driven these stocks to hefty valuations.  The thinking is that these current leaders will dominate the next evolution of technology (artificial intelligence) just as they have the past cycle.  History tells us that generally isn’t true.  IBM owned the mainframe cycle, yet ceded the personal computer cycle to Dell, HP, Compaq and Intel.  Lucent and Nortel owned the telecommunication equipment market.  They unfortunately completely missed the handoff to data networking, watching Cisco rapidly soak up their market share.  Nokia was the leading choice for a cellular handset in the early stages of mobility.  They became insignificant when they missed the smartphone revolution that propelled Apple and Samsung.  Intel owned the microprocessor market for years with greater than 90% market share.  That said, their CPU chips were designed to compute more complex instructions using fewer processing cores, while Nvidia’s GPU chips were designed to process relatively simple calculations simultaneously, requiring large numbers of dedicated processing cores.  The latter happened to be optimized for parallel processing which is needed for artificial intelligence.  The point here is that bad corporate decisions or pure serendipity can conspire to cause leaders to miss technology evolutions.  For this reason, it is important not to wed yourself to any single group of stocks.  The leaders of the AI revolution may not be household names at this point.  In fact, they might be in their infancy or not even born yet.

 

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