AI is making real money—I’m talking about $30 billion in revenue for just one leading AI firm.
On April 6, this company, Anthropic, maker of the Claude chatbot, reported annualized revenue of $30 billion.
That’s a stunning figure, and we’re going to benefit from it—and collect an 8.3% dividend while we do. Our vehicle? One of our favorite tech-focused closed-end funds (CEFs).
What’s more, this fund is a bargain, trading at an 11% discount to net asset value (NAV, or the value of its underlying portfolio) as I write this.
Let’s back up a sec.
That $30-billion figure is surprising enough, but the growth rate is equally stunning: up more than 200% from just last year:
Source: CEF Insider
Put another way, Anthropic has calculated annualized revenue on par with the total revenue posted by Clorox (NYSE:), Ralph Lauren (NYSE:), Church & Dwight (NYSE:), Domino’s Pizza (NASDAQ:) and Hasbro (NASDAQ:) combined.
This is where our 8.3%-paying fund—the BlackRock Science and Technology Term Trust (NYSE:)—comes in, because Anthropic is one of its holdings. Its top-10 positions are listed below:
Source: BlackRock
BSTZ is a holding of my CEF Insider service. If you’re a member, you may recall that this fund mainly focuses on smaller, more growth-oriented tech stocks. Uniquely, it also gives us access to privately held, pre-IPO firms like Anthropic.
That’s one of the reasons why we hold BSTZ: These private firms would be difficult, if not impossible, for us to access on our own. And even if we could get in, there’s no way we’d be able to do so and get an 8.3% dividend. And we certainly wouldn’t be able to do it at an 11% discount!
But this is what BSTZ gives us, due in part to the Iran situation, which has widened the fund’s discount since late February.
Anthropic Sales Growth Shows Us Where to Go Next
To be sure, BSTZ’s Anthropic holding is small, at around $40 million, or a bit over 2% of BSTZ’s $1.7 billion of assets, but it’s clearly growing fast.
That’s great for BSTZ (and the 8.3% income we’re drawing from the fund). But what really matters is what Anthropic’s report says about AI as a whole, and how this will benefit other stocks held by BSTZ and our other CEF Insider holdings.
I’m talking about the fact that AI is decisively not a bubble. The fact that it’s producing revenue for providers like Anthropic (and increasingly for companies throughout and beyond tech) proves it. But that said, AI remains in its infancy, and there’s a long way to go to integrate the tech throughout the economy.
Our job? To front-run that shift.
Consider NVIDIA (NASDAQ:), another BSTZ holding, has gained more than 1,000% over the last few years, since it’s seen as the central chipmaker behind the AI revolution. I see more upside here as AI continues to spread from tech out into the wider economy.
But there are other corners of the AI-hardware market offering more value, where demand is surging, but stock prices haven’t fully captured that fact. Memory-chip maker Micron Technology (NASDAQ:) and Western Digital (NASDAQ:), maker of data-storage products, come to mind.
These types of stocks have been the real AI play for about a year now, and they’ve far outrun NVIDIA in that time:
“Next Wave” AI Stocks Pull Ahead of AI Pioneer NVIDIA
These stocks will eventually price in AI’s growth, but they remain solid opportunities now. But the real action will happen as more “third-order” users, like insurers, banks, and other firms, start to use AI to its full potential.
Even slow-growing firms like the previously mentioned Ralph Lauren are coming on board, as CEO Patrice Louvet said in the company’s latest earnings call: “Ask Ralph, the AI-powered digital shopping assistant we launched in September, is providing us with powerful insights as AI drives accelerated shifts in consumer behavior.”
Profiting From the Coming AI “Bottleneck”
The bottom line here is that it’s going to take time for more companies to take full advantage of AI.
That, in fact, is likely to be the bottleneck over the next few years, and it will get sorted, just like we saw companies come around to using the internet to boost their profits more than two decades ago. Back then, it was smart to follow the same pattern we plan to today: front-run the tech as it flows beyond technology and into the wider economy.
Funds like BSTZ are a great first step toward doing so (especially with BSTZ’s overdone 11% discount), but they’re far from the last one.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, “7 Great Dividend Growth Stocks for a Secure Retirement.”
