The new gold rush
In 1849 gold was discovered in California and thousands left home to find their fortune there. A few did find gold, but all the prospectors needed tools, clothes, and transportation. That’s where the real money was made — in picks and shovels and Levis jeans.
Today the makers of computer hardware are often referred to as the “picks and shovels” winners in the AI revolution. The need for enormously more computing power to make Artificial Intelligence possible has made Nvidia the big winner. So much so that in conversations about AI, Nvidia is often not even mentioned by name. Say “picks and shovels” and everyone knows what company you’re talking about.
Here’s an updated chart of Wall Street projections of sales growth at Nvidia through 2029. The original version appeared in Evan McGoff’s note on the company from last July.
But unlike the California gold rush, where the users of tools usually failed to get rich, the AI revolution is opening enormous opportunities for the users of all this new computing power.
The early winners are the data center operators, but long-term winners will be software providers.
Every user of software knows that they only use a small fraction of the features buried inside the program. Microsoft Excel has 450 mathematical functions. Well over 400 of those are never used by the majority of Excel owners. AI promises to make most Excel users experts instead of amateurs.
Microsoft has introduced a subscription service called Copilot that allows users of Excel to tell the software in plain English what they want a spreadsheet to do. So instead of searching through the list of functions, simply write what you want.
This is just the beginning. All software will be easier to use and the programs people rely on will become more valuable to them. Software will be worth more to the user and they will be more than willing to pay for it, as Copilot’s billions of dollars in subscriptions prove.
Every software company in Dock Street portfolios is mounting an AI effort and the productivity gains are enormous. These gains will increase the earning power of these companies, which will be reflected in higher stock prices.
The new Gold Rush is on.
Best regards,
Daniel A. Ogden
Disclosure: Dock Street Asset Management, Inc. and/or our clients may own Nvidia (NVDA) and Microsoft (MSFT). This article is not intended to be used as investment advice.
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