"Science and technology are the primary productive forces."
Looking at the history of human development, the achievements of the past century are particularly remarkable, which are inseparable from the exponential leap in technological innovation, bringing about a global outburst of productivity.
The potential commercial value brought by technological innovation is always so exciting, but at the same time, innovation means an increase in the uncertainty of failure, which brings corresponding risks to investment.
How to judge the current stage of global technological innovation?
How to effectively seize the opportunities brought by technological innovation?
How to balance the opportunities and risks in the investment of the technology industry?
The author will talk about his humble opinions in this article for readers' reference.
I.
How to view the current global technology industry's cycle phase?
We believe that the world is accelerating into the "TECH BIG BANG" era of technological explosion.
The 21st century can be called the golden age of technological innovation.
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In just over 20 years, we have experienced two magnificent technological revolutions.
The first technological revolution was the "Internet Revolution."
Although the first electronic computer "ENIAC" was born in 1946 at the University of Pennsylvania in the United States, it was not until the end of the 1990s that the Internet began to enter thousands of households on a large scale.
Thanks to the low-cost popularization of fiber optic networks, the progress of computer chip technology, and the optimization of computer software operating systems, the most representative product is the PC personal computer, which has given birth to many technology giants, the most typical being the WINTEL alliance.
The second technological revolution was the "Mobile Internet Revolution."
The symbolic event was the emergence of the first-generation iPhone smartphone in 2007, which quickly digitized and informatized everyone's work and life, creating tremendous social value and making many new technology giants.
At present, we believe that the world is welcoming the arrival of the third technological revolution of the 21st century—the "Artificial Intelligence Revolution."
It is not limited to the well-known large language models, and the popular ChartGPT in the past two years may just be a product form in this wave of technological revolution.
There are more technological innovations coming, whether it is the upstream chip hardware, algorithm models, downstream vertical applications, or the early-stage frontier technologies (such as quantum computing, brain-computer interfaces, etc.
), all are closely related to artificial intelligence, and the world is accelerating into the "TECH BIG BANG" era of technological explosion.
Firstly, in terms of chip hardware, wafer foundry giants are leading the digital chip process technology to continuously surpass "Moore's Law."
According to the forward-looking technology roadmap, it is expected that by 2030, the semiconductor process with a 0.7nm node will be achieved by adopting the CFET process (complementary field-effect transistor), which is four generations ahead of the current most advanced 3nm node; the Dutch lithography machine giant officially released the latest high-NA EUV extreme ultraviolet lithography machine in December 2023 to meet the chip manufacturing needs after 2nm; the GPU computing power chip giant released the GPU iteration roadmap for the next three years at the Computex conference in June 2024, which will support a million card computing power cluster and high-speed communication interconnection.
Secondly, in terms of algorithm models, large model technology is gradually dividing into two paths that are advancing side by side.
One is represented by Silicon Valley startups such as OpenAI, Anthropic, X.AI, etc., constantly pursuing larger parameters and higher intelligence in super-large models, in line with the scaling law scale rule for technical iteration; the other is represented by North American cloud computing CSP giants, focusing on cost-effective models for low-cost application inference, with not much parameters, focusing on how to efficiently implement AI large models at the application end.
Finally, in terms of vertical applications, autonomous driving technology has been developed for many years, but it has not been able to effectively break through level L4, and leading companies are using LLM large models, end-to-end methods, and large-scale computing power to solve the last piece of the puzzle in autonomous driving technology; in embodied intelligence, how to train an AI with general control ability is the challenge for the landing of general humanoid robots, and after the AI technology breakthrough in 2023, related patent papers and product innovations have emerged like a spring breeze; the first-generation Apple Vision Pro (mixed reality) product released in June 2023 seems not very successful, and starting in 2024, more and more technology companies are developing new generations of virtual/augmented/mixed reality products based on new AI technology.
II.
How to grasp the investment opportunities in China's new round of technological revolution?
We agree that based on a medium and long-term perspective, we should focus on the two major investment themes of "technological innovation" and "independent controlability."
First, we focus on the two major investment themes of China's technology industry, "technological innovation."
In the third wave of the 21st-century technological revolution, we believe that Chinese technology companies will have greater investment opportunities than the previous two technological revolutions.
Whether it is the underlying chips, equipment, basic software, and other links, or downstream applications such as autonomous driving, embodied intelligence, and mixed reality, or the upstream supply chain links supporting global technology leaders, many effective investment opportunities can be found and seized.
China currently has the most complete technology industry supply chain system in the world.
Over the past 40 years of reform and opening up, China's technology industry has undergone earth-shaking changes, especially in the past decade, Chinese technology companies have played an important role globally, and some areas can be said to be leading the trend.
In the era of the "Internet Revolution," Chinese technology companies started with learning overseas technology and gradually participated in the global technology supply chain, and follow-up innovation was the mainstream.
In the "Mobile Internet Revolution," Chinese companies' status in the global technology industry has risen rapidly, especially in the core smartphone industry, where there are both globally renowned smartphone brands and many star companies of upstream components, participating in the supply chain of the world's top technology companies and playing an important role.
China currently has an engineer dividend and consumer market that the world envies.
China has about 11 million university graduates every year, accounting for a large part of the science and engineering majors, and a large number of excellent engineers are the foundation of technological innovation and development.
From Zhangjiang in Shanghai to Zhongguancun in Beijing, and then to Nanshan District in Shenzhen, technology companies have become a gathering place for outstanding young people.
The huge domestic market is China's strong first-mover advantage in developing technological innovation.
China is currently the world's largest market for smartphones, laptops, passenger cars, basic communication networks, and other sales, and the huge group of technology consumers provides a breeding ground for technological innovation.
Second, we focus on the two major investment themes of China's technology industry, "independent controlability."
Before 2015, Chinese technology companies were more concentrated in the low-end manufacturing and assembly links, lacking irreplaceable importance.
After nearly 10 years of development in the 13th and 14th Five-Year Plans, they have made great progress in high-end manufacturing and core technologies.
However, objectively speaking, there is still a gap with the world's first-class level in some key areas.
The global technology industry has developed for many years and has formed a highly globalized ecosystem.
However, the complex industry chain and unpredictable international political situation make the independent controlability of core technology particularly important for national economic security.
From an investment perspective, focusing on key bottleneck areas (such as integrated circuits, industrial mother machines, basic software, advanced materials, scientific research instruments, etc.
), once the technology breaks through, it is expected to bring a leap in commercial value, which will bring effective investment opportunities.
III.
How to balance the opportunities and risks in technology investment?
We insist on a solid industry research, grasp the rhythm of the innovation cycle, find good companies with real growth, and carefully evaluate the valuation and risk compensation.
Technology investment has a large uncertainty, and the investment risk is higher than the traditional industry.
Due to the instability of innovation, the variability of technology routes, and the unclear competition pattern, technological innovation has a large uncertainty, so technology investment has always had the characteristics of high risk and high return.
For example, from 1995 to 2001, in the early stage of the "Internet Revolution," the U.S. stock market's technology stocks experienced a significant rise and a rapid retreat, which was later called the "Internet bubble," reflecting the early stage of the rise of the technology revolution, and if the investment is too far ahead of the industry cycle, it will bring huge bubble risks.
So how to balance the opportunities and risks in technology investment?
We believe that four points are crucial: First, based on solid industry research, be the hardest head in the industry.
Elon Musk's advocacy of the first principle is also very suitable for the field of technology investment, emphasizing starting from the most basic principles, and deducing the essence and rules of things through logical reasoning.
The essence of technology investment is to judge the success of industrial innovation.
Only by deeply understanding the actual progress of the industry, the breakthrough points of innovation, and the potential risk points, can we deduce the rules of innovation through logical reasoning, thereby improving the accuracy of investment.
This requires a large amount of industry chain research and cross-verification to support it, which is not possible for non-industry experts.
Second, grasp the rhythm of the innovation cycle.
The development process of technological innovation rarely goes smoothly, and the judgment of the rhythm of the big cycle is very important.
Participating too early will experience a significant retreat, and participating too late will miss the high return stage.
Referring to Gartner's summary of the innovation cycle theory, technological innovation can be divided into five stages: the technology germination period, the expectation expansion period, the bubble bottom period, the climbing bright period, and the production stable period.
For technology investment, grasping the expectation expansion period and the climbing bright period is the best investment strategy.
The former is to pursue the rise of PE valuation, and the latter is to pursue the double hit of EPS performance and PE valuation.Thirdly, seek out companies with genuine growth.
The most common mistake in technology investment is mistaking "pseudo-growth" for "true growth" and "cyclical growth" for "sustainable growth."
To distinguish the real from the fake, it is necessary to conduct a bottom-up, in-depth fundamental analysis of companies, examining their intrinsic quality, management team's execution ability, competitive advantages, and disadvantages.
Fourthly, carefully assess the rationality of valuation and long-term risk compensation.
Given the high uncertainty in technology investment, the rationality of valuation is crucial, and a higher long-term risk compensation is needed to mitigate the risk of innovation failure.
Risk compensation mainly comes from the long-term potential of the industry, clarity of competitive landscape, the company's future market cap potential, and the flexibility and certainty of profitability.
In summary, at the recently concluded Third Plenary Session of the 20th Central Committee of the Party, the importance of developing new quality productive forces was once again emphasized, proposing to "adhere to the forefront of world science and technology, optimize the organizational mechanism of major scientific and technological innovation, and coordinate and strengthen the research and development of key core technologies" and "to improve the system for enhancing the resilience and security level of industrial and supply chains, and to urgently build a controllable industrial and supply chain."
Therefore, facing the opportunities of the "artificial intelligence revolution," the third technological revolution of the 21st century, we believe that we should base our investment on a medium to long-term perspective, focusing on two major investment themes: "scientific and technological innovation" and "independence and controllability."
This approach will balance the opportunities and risks in the investment of the technology industry, seize the opportunities of the era of technological innovation, and become the most insightful in industrial research.