Trojan Global Equity Fund

As early as 2017, NVIDIA CEO Jensen Huang predicted that whilst ‘software is eating the world… AI will eat software’. Fast forward eight years and it is fair to say that Mr Huang has gathered a few more adherents. As physical infrastructure is built at breakneck speed, software coding is arguably the best example of where Generative AI (‘Gen AI’) has achieved breakthrough success at the application layer. The ease at which software is created invites profound questions for the software industry about the speed of innovation, product adoption, competition and monetisation. In recent months, concerns have also spread to information service companies, particularly those that gather and package text-based content delivered (usually via software) to white-collar workers. In most cases, it is too soon for Gen AI to have a discernible impact on business results, either positively or negatively. In a vacuum for certainty, however, patience is in short supply and nuance is often lost. Within the Fund, the share prices of Adobe, Intuit, RELX, and LSEG were all affected by deteriorating sentiment during the month.

We approach this subject with a balance of realism and paranoia. Software and information service providers have spent decades developing and embedding their products to reliably and securely solve their customers’ complex problems. The value of these sticky relationships is as much behavioural as technical. Incumbent service providers are hard to dislodge because for a relatively modest fee they are trusted to complete a mission-critical job, freeing their customers to focus on their own core business. Most customers are risk averse and unmotivated to change.

At the same time, there is no room for complacency. AI creates a window for new competitors to emerge. Every company is challenged to find ways to integrate Gen AI features before a start-up gets there first. We are encouraged that our affected companies are in no way asleep at the wheel and that their entrenched positions give them the time and resources to adapt. We observe them investing urgently and intelligently to ensure that Gen AI is, in Clayton Christensen’s framing, a sustaining innovation rather than a disruptive one.