1. AI: A Great Opportunity... But a Tough Game.

Right now, AI companies are all racing to build pretty much the same thing, the most performant AI model.

History shows us the likely outcome: The winner takes all. Google dominates search, Amazon owns retail, Microsoft rules productivity.

So, no, we probably won't see 20% ChatGPT, 20% Claude, 20% Gemini, etcetera.

What we 𝘥𝘰 know is this: Every single player in this race will burn through unimaginable amounts of capital - because it's the only way to stand a chance.

2. Meet the “o3” model.

OpenAI has recently unveiled its latest advancements in artificial intelligence with the introduction of the o3 model.

The o3 model is a new frontier AI model that enhances reasoning and intelligence and is not just a memory regurgitation but a foundational shift in how AI can engage with complex problems. It’s substantially closer to human level cognitive ability in ARC-AGI's specifically curated tests, which cannot be passed through memorisation alone.

While the o3 model represents a significant advance in AI capabilities in tackling complex tasks, its high computational cost poses several challenges and raises questions about practical usage. It’s one thing to prove an AI model can get high scores on tests, but the significant computational load required makes it economically impractical for widespread use at the moment.

Given that O3 is 1000x more expensive at a task than “o1”, demand for datacenter power is the golden screw. This is the critical piece that prevents the entire solution from being delivered.

But for now: Matematicians and scientists are shocked by its capabilities and are warning “The world is not ready for this”.

3. Software continues to lead the pack in terms of growth expectations from CIO’s in 2025.

AI/ML (ML = machine learning) is cited as the #1 IT spending priority in 2025 and the AI/ML projects are viewed as highly mission-critical.

4. If 2025 will be the year of software, how do some of the software vendors compare on financial metrics?

5. And of course let’s not forget the public cloud vendors, who remain the clear beneficiaries of incremental AI spend.

Microsoft Azure remains CIOs' preferred public cloud vendor (and is expected to remain so over the next 3 years), followed by Amazon AWS and Google GCP.

CIOs indicate that 54% of application workloads reside in Microsoft Azure today, according to a survey from Morgan Stanley.

6. Today, we will get another important inflation number.

What sectors do well when rates go up?

7. The trinity of relative value.

Small caps are cheap vs large caps, value is cheaper than usual vs growth, and global is at record cheap levels vs US.

Will 2025 be the year where the elusive turning point is found for a multi-year move?

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