BMO Global Innovators Fund - Monthly Commentary

The Olympics of Innovation

As we mark the start of the Olympics in Paris, we have just finished the Collision Conference aptly nicknamed “The Olympics of Innovation” where a record-setting 35,000 attendees converged in Toronto to meet up-and- coming startups apply new technology to global challenges. Highlights of the show are in this monthly.

Collision Conference 2024

Once again we were delighted to be attending the Collision Conference hosted in Toronto. The Collision Conference is a great venue to meet up-and-coming startups to see which technologies they are implementing and the progress made. In this regard it delivered again with record-setting attendance and hundreds of startups in various stages of incubation from idea to commercialization.

Figure 1- Example of how AI is now pervasive amongst startups

Unsurprisingly, AI was the dominant theme of the event with organizers joking that it was rare to find any startup that didn’t mention any reference to it. The tone of the conference in this regard differed from last year, which was much more focused on existing enterprise software companies adding AI features and functionality. Intuit was a great example of this from established vendors integrating AI features across multiple product lines. Jasper AI personified the typical enterprise startup. In Jasper’s case it was using AI to read a company’s marketing documentation and mimic its style. Users could simultaneously then generate multiple marketing pieces across many channels using the appropriate voice and branding.

This year, we saw these AI features permeate every business. A startup can now integrate features that last year were the exclusive domain of larger organizations. Figure 1 is a great example of this but we literally saw hundreds of these integrations across the show floor.

IoT¹ – To Be or Not to Be

Perhaps one of the more sobering presentation was the Rabbit r1. Rabbit r1 as you may recall was the hit of the Consumer Electronic Show this year with a surge of tens of thousands of pre-orders. The Rabbit r1 is an AI- powered personal assistant device that performs tasks such as web searches, media viewing, food delivery, etc. through voice commands and touch interaction.

However, critics have not been kind to the final product, released in the first half of the year. They have cited that its functions are too similar to smartphones and home-control devices to provide any unique capabilities. Actually those were the kinder commentaries and others², including the recap from the presentation, were far more brutal saying usage of the device made the reviewer “tear his hair out.”

While we are constructive on AI including Apple’s new Apple Intelligence product roadmap, the challenges of the Rabbit are a reminder that more sophisticated and reliable devices will be required to truly enable an AI assistant.

Figure 2- A demo of the Rabbit r1 with CEO Jesse Lyu

Will Quantum make the Leap?

Figure 3- Xanadu Providing and Update on the Appeal of Quantum in Data Centers

We are often asked to provide our thoughts on the state of Quantum computing. The Collision Conference provides a great forum and once again quantum-pioneer Xanadu Quantum Technologies. Again, we believe that quantum is still in its early stages and is a technology searching for an ideal problem. Xanadu highlighted the efficiencies one would gain if Quantum was partnered with AI in the data center. Massive energy efficiency is just one of the benefits. We shall see.

New AI Chip Contenders

Figure 4 - Contenders to Nvidia show their enormous chips

A 2024 Collision Conference would not be complete without a section dedicated to chipmakers, and we were delighted to attend sessions with Andrew Feldman (Co-Founder & CEO of Cerebras Systems) and Jonathan Ross (Co-Founder & CEO of Groq).

While Nvidia undoubtedly holds the title as king of AI chipmakers, Cerebras and Groq are two exciting up-and-coming challengers, proposing innovative solutions in the fiercely competitive AI training and inference markets. Cerebras aims to tackle AI with size (the company’s flagship product “Wafer Scale Engine 3”, pictured above) while Groq specializes in delivering inference with speed.

While we applaud the technological innovations of both companies, it would be remiss of us to not mention Nvidia’s commitment to shortening the cadence of its new product cycles to a 12-month basis. Thus, while we believe the market opportunity will be large enough for multiple players to find their respective niches, we maintain our conviction in Nvidia’s market leadership.

As we are only in the early stages of both consumer and enterprise adoption of AI, we look forward to closely watching the developments from both heavyweights and up-and-coming contenders.

Summary on the Collision “Olympiad” from 2019-2024

This marks the fourth time we have attended this conference. We joke that Toronto was only supposed to host this event three times but the organizers found it so successful that they decided to go for four. Actually COVID- 19 unfortunately interrupted this run and to compensate, the organizers ran the event over a longer time period to the delight of everyone here.

Four events gave us a unique perspective on the evolution of innovation. The first iterations of the show were more focused on IoT. Crypto and digital assets then became a dominant theme that has waned somewhat but still persists. This led us to comment that “only the strong survive on the cryptocurrency side”.

E-commerce has always been a strong theme that has persisted over the years. This was part of our “every company will become a digital company” and it continues in all aspects including the business plans for startups. All of them are trying to tackle a real-world problem with a digital solution.

This digital solution will now incorporate AI. Although we are unsure whether all of these startups will make it to maturity, we are sure that the next generation of digital applications will have AI at its foundation.

As we bid farewell to Collision in Toronto, we wish Vancouver all the best as the next city to host this amazing “Olympics of Innovation”.

Portfolio Update for July

We raised cash levels to double-digit levels in July and created a hedge on our Nvidia position ahead of its earnings print in August. While we are constructive on AI capital spending in the long term, in the short term we were concerned that Nvidia’s new chip platform (Blackwell) may have production delays. This combined with poor market breadth, seasonally low liquidity over the Summer, an unwind of the Japanese carry trade³, and weaker economic results in the US as elevated rates finally hit the consumer.

These concerns did come to fruition and we did see elevated volatility at the end of the month and start of August. We will keep investors posted on further thoughts and portfolio actions.

* Annual Management Expense Ratios (MERs) are as of September 30, 2023.

^† The U.S. Dollar purchase options do not have audited MERs. For an approximation, please see the Canadian dollar equivalent of this series.

¹ The term IoT, or Internet of Things, refers to the collective network of connected devices and the technology that facilitates communication between devices and the cloud, as well as between the devices themselves.

² https://www.theverge.com/2024/5/2/24147159/rabbit-r1-review-ai-gadget

³ Carry Trade: A carry trade is a trading strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return. A carry trade is typically based on borrowing in a low-interest rate currency and converting the borrowed amount into another currency.