Making the right moves in the AI age

This year marks the 30th anniversary of the groundbreaking chess match between Garry Kasparov and IBM “supercomputer” Deep Blue. The historic clash took place in Philadelphia in February 1996, with the winner pocketing $400,000.

What made the encounter especially memorable was that the human race’s representative lost the opening game. It was the first time a machine had beaten a world champion under “normal” playing conditions, classical time controls foremost among them.

Kasparov immediately cried foul, claiming a fellow grandmaster must have been supplying the IBM team with on-the-fly tips behind the scenes. But the broad consensus nowadays is that the maestro genuinely slipped up, allowing his faceless foe to pounce.

The following year, when the pair met again, Deep Blue won outright. Computers’ capacity to imitate Homo sapiens was already progressing in ever-lengthier leaps and bounds.

Today, of course, the likelihood of Kasparov or any of his flesh-and-blood peers defeating a chess program are practically zero. Artificial intelligence has come a long, long way since the mid-’90s – not least during the past couple of years.

Perhaps ironically, Kasparov is now a confirmed AI fan – although he prefers the term “augmented intelligence”. He’s widely credited with remarking: “AI won’t replace humans, but those who use AI will replace those who don’t.”

Many investors doubtless have similar feelings. Despite sporadic fears over an AI bubble, it’s hard to deny that this is the dominant investment theme of our age and that those who ignore it are highly likely to miss out on some pretty agreeable returns.

As in chess, though, there are near-countless routes to success. For example, an AI investment strategy doesn’t have to revolve exclusively around the US tech titans that continue to dominate media narratives and stock market indices.

Take Asian smaller companies. Many of Aberdeen Asia Focus plc’s holdings are closely linked to the AI revolution but have the added attraction of not being mired in headline-grabbing debates over potentially stretched valuations.

By way of illustration, let’s start with the world’s second-largest economy. The spectacular emergence last year of state-of-the-art chatbot DeepSeek underlined that China is now a force to be reckoned with in the AI sphere, but what about its hidden gems in this arena?
We like Hesai, which produces the lasers that facilitate autonomous driving. The company has few meaningful rivals at present – not just on home soil but anywhere – which suggests a significant growth story could unfold over the longer term.

We also hold Precision Tsugami, which was once known purely as a specialist in precision tools. The business is now expanding its international client base by placing greater focus on orders related to both AI and robotics.

Elsewhere in the region, Taiwan Union Technology is another business that has kept pace with technological change. Established in 1974, it originally made optical glass before moving into mass lamination – a high-volume process for the manufacture of multi-layered printed circuit boards (PCBs).

Also based in Taiwan, Accton Technology is a leading developer of network and communication solutions. Many of its products are vital to the functioning of data centres, the energy-intensive “computation factories” at the heart of the AI era.

One AI-linked business that has caught our attention recently is AvePoint. In September last year it became the first B2B software-as-a-service company to list on both the Singapore Exchange and the Nasdaq. It’s a go-to provider of back-end data-management infrastructure within the Microsoft ecosystem and is now also tailoring its tech to other systems.

Opportunities like these can be found across much of Asia. For instance, South Korea is a hotbed of semiconductor production; Vietnam is increasingly influential in the field of electronics; Thailand is building a reputation in the PCB space; Malaysia is home to numerous software design companies; and India is generally a tech “leapfrogger” without equal.

Naturally, there’s much to be said for investing in Nvidia and other big-name AI players. Yet it’s seldom wise to imagine the same businesses, the same geographies and the same segments of the market-capitalisation spectrum will forever head the performance charts.

To return to chess: it’s possible to win a good number of games with the same stratagem – say, Fool’s Mate, the Sicilian Defence or the Queen’s Gambit – but it’s unrealistic to believe such an approach will invariably lead to victory. There must always be room for the Frankenstein-Dracula Variation, the Hillbilly Attack and even the Monkey’s Bum.

Needless to say, that’s not a sentence I ever envisaged myself writing. But if it helps articulate the importance of diversification – and, by extension, the importance of informed investment choices – then I’m prepared to live with it.

After all, as Kasparov also observed: “The stock market and the battlefield aren’t as tidy as the chessboard, but in all of them a single, simple rule holds true: make good decisions and you’ll succeed; make bad ones and you’ll fail.”

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

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