It was a familiar kind of energy in the room at this year’s Sohn Investment Conference in Hong Kong – not the frenetically retail-dominated excitement of the speculation, but the quiet, serious gaze of the members of the hedge fund fraternity at one another, wondering where there’s real value to be extracted. This time, two seemingly unrelated forces emerged as key players: the extensive infrastructure behind AI, and the surprisingly resilient consumer spending of the Gen Z generation. One is related to chips and data centres. The other one is related to pet food and instant noodles. But both, the speakers said, are the same idea: Markets are changing underfoot, and the old playbooks are no longer applicable.
One of the more memorable pitches of the day came from Kenny Zhang, chief investment officer at valliance Asset Management. He was addressing an aging crowd of investors in front of him and making the case for the U.S. firm CoreWeave, which offers AI data center hardware and cloud capacity running on Nvidia chips. Zhang didn’t just speak about revenue multiples or processing power. He re-invented the whole labor issue. “How do we make the digital people happy if we think that chips are replacing the people?” So, his response was CoreWeave. He said the new production model with AI will lead to “knowledge labour to digital people” and global companies exporting that kind of labour via AI. In his opinion, maintaining such digital systems at a high level of reliability and efficiency is the next big industrial hurdle. That demands companies such as CoreWeave, which are essentially at the crossroads of hardware, cloud infrastructure and AI operations.
The logic of Zhang’s argument was not the only reason for its success; the timing of it was also very important. Major Asian equity indexes have been outperforming their western counterparts this year, in part due to a semiconductor rally. Investors have been silently applauding and yelling at themselves about the trajectory of Nvidia, and what they may miss out on if they don’t buy more in the lower rungs of the supply chain. That’s where a few hedge fund managers at Sohn focused their attention. There were also other names that came up that most of the casual investors wouldn’t know. Two companies—printed circuit board manufacturer Compeq and Japan’s electrical engineering, construction firm Kandenko—were singled out as stealth winners of the AI craze. Neither makes headlines. But both are vital to the hardware that underpins AI – circuit boards for servers, electrical work for data centres. During a gold rush, the best business is always the shovel business.
The companies pitching at Sohn did not indicate whether they were currently employed by a company or not. It’s a common practice at the conference, which is meant to be a place where high conviction ideas are exchanged, not formal buy recommendations. Nevertheless, it was difficult to overlook the trend. The themes of AI supply chains and Gen Z consumer behaviour were consistent across all presentations.
Consumer-side, the tone turned from industrial to an almost anthropological. One manager noted that Gen Z is entering their prime spending years and doesn’t necessarily want to pursue adulthood in the same way that previous generations did. The price of expensive cars and luxury watches is not important. It’s little things you can do every day that count. It has subtly turbocharged areas such as high quality pet food or instant noodles. In fact, purchasing pet food has proven to be an enormously successful category, as younger pet owners consider their pets more like family than animals. Before they decide to cut back on their dog’s meals, they are going to save the money elsewhere! The same applies to instant noodles, which have experienced a stealth comeback in recent years with high quality and limited edition releases making a cheap noodle a lifestyle item. These niches are unique because they have sustained demand but little media attention and are ideal for hedge funds searching for consumer plays not being saturated with competition or overvalued.
A larger takeaway from this is that it is not just about any single stock or sector but about something else. For two years now, a few superstar chip manufacturers have been telling the AI story. In fact, the true investment opportunity could be changing from the coolest, sexiest components of the system – the wires, the cooling systems, the circuit boards, the electrical grids – to the less sexy parts of the system. These are not businesses that double in just one night. They are constant, consistent and frequently invisible! However, the Gen Z spend narrative serves as a reminder that demographic change doesn’t always happen as marketing agencies would like. The biggest opportunities are sometimes right under your nose, at the pet food counter and in the noodle cup.
