Investing in emerging markets – technology and AI
In the final part of this series, I speak with June Lui, Portfolio Manager and Analyst from Polen Capital’s Emerging Markets Growth Team, to explore China’s dominance in artificial intelligence (AI), and innovative technologies.
We discuss how Polen Capital – our investment partner in global equities – evaluates whether new technology companies are capable of generating profitable growth. June shares insights on the excitement around AI developments, such as DeepSeek, and whether these companies will be able to compete with established technology giants. We also discuss the potential for opportunity in large and small language models.
Listen to the full video to learn more.
Transcript:
Roger: Hi. I’m Roger Montgomery from Montgomery Investment Management, and welcome to this third part in our series on ‘investing in emerging markets’ with June Lui. June, thank you for joining us. June, China is an emerging leader, if not arguably a leader in a bunch of technologies including electric vehicles, Artificial Intelligence (AI) and renewable energy. Tell me a little bit about your approach to investing in these sectors with Polen?
June: Yes, we believe that the technology advancements, in particular, AI and electric vehicles, are very exciting and will have impact on many companies for decades down the road. And we believe that as an investor, not only are we are excited by the technology itself, but also how companies can generate profit for shareholders. So, the return profile is really something that we care a lot about when we evaluate the potential in those developments.
Roger: Yeah. Look, my experience has been that it’s very easy to get excited about new technology transforming the world, but it’s often the case that the new technology that transforms the world helps consumers – not necessarily investors. So how do you refrain from getting excited? What are the metrics that you look at to decide whether or not a company is going to generate profitable growth from that new technology?
June: We focus on companies that already have service or products that have a fee-based charging model. Which means that AI is not just something nice to talk about but can really help them [companies] to make the product even more attractive and to make it into a service that they can charge for (revenue). So, there are companies that we own, for example, that operate an ‘Office’ software in China, which is the Chinese version of Microsoft.
Roger: Right.
June: So apart from, the benefits from the trend of localisation, which means, Chinese companies are migrating away from Microsoft to the Chinese version of ‘Office’ software. But, also, they are incorporating [a similar] AI function to the ‘Co-pilot’ function. So, these AI developments are helping the company to provide more premium services and more effect efficiency improvement tools for their customers – which, would lead to an increasing in income and revenue from customer subscription.
Roger: So, I know you’ve heard this today. You’ve done a lot of institutional meetings today. I’m sure everyone wants to know about DeepSeek. Everyone wants to know whether or not it’s real. Is it, is it something that you think can be scaled, or is it something that you think the Googles and the Open AIs of the world and the Microsofts of the world will copy and replicate and compete with? What’s your what’s your view?
June: Yeah. DeepSeek brings a lot of excitement and why everybody loves that that kind of story. A small nobody team is able to fight the giants and win with flying colours.
Roger: Yes, we love a David and Goliath story.
June: Exactly.
Roger: We love seeing David win.
June: Yes. So, we see that actually, DeepSeek is not the only one in China. There are a few other Large Language Models (LLMs) built by not only bigger platforms like Alibaba, Tencent, Baidu, but also some other smaller platforms. Smaller companies come up with very credible Large Language Models which they are able to do in a very creative way. So, they are real, and they are we believe that this because they have to operate on very limited resources, and they are forced to be efficient and forced to be innovative. And that’s what we see in the landscape of the Chinese market in many aspects. We’ll continue to see more Chinese companies coming up with a good and innovative solutions where the world will see that innovation and be happy – not just because it is from China but it benefits the whole ecosystem and whole world in terms of technology advancement.
Roger: Fantastic. And tell me something again – I have a habit of asking questions without notice, forgive me. Have you formed a view on how Large Language Models will evolve? You know, do you think we’ll do you think you and I will be using Small Language Models instead of Large Language Models? Have you have you thought a little bit about that and what’s your insight?
June: We believe that Large Language Models, at least from our understanding, are the key players in China, so it will be commoditised fairly quickly. That’s why when we look for investment opportunity, we have already looked beyond that. So, most of the investors in the past has been focusing on hardware. It’s NVIDIA, NVIDIA, NVIDIA, and NVIDIA. And then, moving on to the Large Language Model, we think that those are also something of the past. So, we are already seeing many models going free for users
Roger: Yes.
June: Like, in China. Training and all the inferencing cost have been much lower in China than the other parts of the world. So, we are looking beyond the Large Language Model, [and focussing on] specific inferencing and smaller models which can fit into more applications and [can have] charging models.
Roger: And so then, thinking about the upstream suppliers, if inferencing ultimately requires less compute power because of the more efficient way of doing inferencing (or inferring), then does that mean you think that ultimately the expectations or the current forecasts for power use, for chip use – do you think we might get to a position of oversupply? Or do you think ultimately the demand is so great that it will soak that up as well?
June: We believe, with the more efficient models available, it will increase the demand side. At the moment, only a handful of hyperscale companies are having the kind of power to do that. [So, there is] a lot of potential uses. With the improvement in the efficiency and lower costs, there will be more demand. In a sense, there will be more application that can be developed out of that. And so, whether there will be a shortage or a oversupply, it really depends on …. well, at the moment, it is still shortage.
Roger: Right.
June: So, for any powerful chip – in the future – there will be more demand. At the same time, you don’t need the most powerful ones. So, it’s too early to tell whether we will see the balancing point at the moment.
Roger: Yes, the equilibrium point.
June: Yes. Equilibrium point. So, but we see that there will be more demand in terms of the expansion into the application.
Roger: So, it sounds like you agree with the idea that consumers will ultimately benefit, but you’re moving further downstream to find those companies that are profitably applying the technology.
June: Exactly. So, we need to see eventually that those companies can leverage on that technology to generate good returns for shareholders.
Roger: Wonderful. Thank you so much for your time and thank you for traveling to Sydney to be with us today. That’s all we have time for. Hope you’ve enjoyed the series with June and for more information, about investing with our partner, Polen Capital, please visit our website.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
