The world wants to invest in AI.
NVDA stock is up 200% YTD. Amazon and Google are investing billions in private foundational model startups like Anthropic and Inflection. Microsoft has re-envisioned itself as an AI company through its wide-ranging partnership with OpenAI.
It’s obvious why we’re seeing such aggressive investment.
AI has the chance to be a world-defining technology. We believe it could be even more transformative than the Internet. Just as the Internet touches everyone in the world now, AI will do the same.
With all the investment into AI, it’s important to benchmark the continued excitement around the space. We benchmark investor excitement for emerging technology themes with our Deepwater Frontier Tech index.
The index tracks several emerging tech themes to give a broad benchmark for frontier investing. AI makes up 40% of the index with the rest of the index comprised of companies that develop self-driving and electric vehicles, robotics, the metaverse, and fintech. Historically, the index has included major winners like NVIDIA and Tesla; however, our process excludes companies with market caps over $500 billion so we’re focused on the emerging players developing frontier tech rather than the mega caps we all know and love.
We started our index in July 2018. Since inception, we believe our index has outperformed many other major innovation-focused investment strategies including Ark’s flagship Innovation fund (ARKK), Blackrock’s XT, ROBO, and BOTZ.
We believe comparing inception-to-date metrics against strategies with the same manager and strategies is the fairest representation of long-term performance. The difference in performance between our index and those funds defines the Deepwater Frontier Tech Index as the true benchmark for tracking long-term frontier tech performance.
The Deepwater Frontier Tech Index powers the Innovator Deepwater Frontier Tech ETF (ticker: LOUP).
YTD Index Review
The DFTI is up 21% YTD vs the Nasdaq up 26% YTD. The S&P 500 is up only 11% YTD.
The disparity between the DFTI and Nasdaq is driven by the outstanding performance of the mega cap tech names that we exclude from the DFTI. While much of the excitement around AI is being captured by the biggest players in the game, our index suggests that investors are also excited about other companies that engage in building frontier technologies.
The best performing stocks in the index YTD include a few AI winners:
- VRT: up 69% since it was added to the index in mid-June. Cooling solutions are particularly important for data centers built for AI and accelerated computing as GPUs can create more heat than CPUs given the massive amount of parallelization which is the core advantage of GPUs. Vertiv provides leading cooling solutions for data centers.
- AMD: up 61% since the beginning of the year. AMD is NVIDIA’s largest competitor in the AI and accelerated compute hardware space. We believe that NVIDIA has nearly 90% market share for such hardware, but AMD is increasing its competitive efforts with its recent MI300 chip and ROCm software to help developers build with AMD hardware.
- CRWD: up 60% since the beginning of the year. Hackers are already using AI as a tool for more effective breaches, and AI will only increase the need for strong enterprise cybersecurity solutions. CrowdStrike defends enterprise endpoints that provide attack vectors by bad actors. The company also launched Charlotte AI, an AI-powered security analyst that helps customers understand security issues.