Handbags at the dawn of the AI era [Members]
For MOGULS by The Investor
on April 30, 2026
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The year is 2050. It’s five years since the US president handed over the nuclear launch codes to a possibly-sentient artificial intelligence. More tangibly, the AI revolution is all around us in clean and decarbonated air, abundant crops, and the banishing of cancers that slew millions just a generation ago.
Of course, half the world’s adults have no job – besides charity and volunteering – and half again of the rest ‘work’ in the same way spouses of London bankers used to run unprofitable art galleries in the Cotswolds.
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Not quite AI but a tech related change in manufacturing, precision engineering was my field and I still keep up with it.
More expensive machine tools were the normal answer to volume and reducing labour costs, but counterintuitively , cheaper(much) , simpler CNC machines combined with relatively crude robots and 3d printing for easy fixturing and simplified manufacturing of the grippers and interfaces can be much more labour efficient and cheaper to make parts.
It’s the versatility and low cost of setup and not needing expensive costs to integrate robot and machine tool. Makes it much easier to produce at volume , quick adaptations with low capital costs , easier to compete with the traditional low cost providers.
There is hope for manufacturers in the uk, it needn’t be all gloom and doom.
@Hariseldon — Interesting, what’s CNC he says (before going on to Google it, inevitably). As discussed in the piece I don’t think Hermes will change much with new technology, except perhaps in as much as it enables them to be more authentically artisan at the edges. (Maybe the sort of thing you discuss will enable some obscure parts of the processes to be taken back in house, though this is speculation on my part).
Have you ever looked into Ferrari? It’s really fascinating. As I understand it the reason it’s able to offer so many variations of its base models (and to keep tweaking those bases) is because it’s production line is so bespoke. It’s using modern equipment, of course, but its tooling etc is mostly put together or customised by/for Ferrari and its production lines are geared towards very short runs.
A shame Aston Martin (LSE:AML) hasn’t been able to repeat the trick…
Thanks for this. Ferrari: the story seems to be about what people make of electric machines i.e. is it as fun without the vroom-vroom! I think the CEO is impressive, and they’ve obviously been working hard on it, but I think it’s extremely hard to forecast. OTOH, other manufacturers have the same issue, and the brand is iconic.
As ever, I’ve always wanted to own these two companies, and now they’ve come down so much, I’m nervous… so thanks for this article, time to do more work…
Re: HA v LO: You’ve seen the moves in uranium and memory stocks right? SK Hynix tipped by (of all people) Woodford last year at 260,000 KWN and now at 1,286,000. Yet its Forward PE is lower now as compared to then so explosive has been recent earnings’ growth. Capital intensive, previously cyclical manufacturing yes, but ML/future AI will surely need plenty of memory / data transfer, and probably require high density, continuous base load power. Will the world always need / want hand stitch handbags at £10k a pop and Supercars stuck in traffic? Remember fur coats? Lizard skin purses? LO’s a relative concept. Tastes change. Values change. Are Hermes and Ferrari storied stocks or ultimately just story stocks? Who knows?
On the artisanal authenticity, there’s an element here of Morpheus to Neo: “What is real? How do you define ‘real’? If you’re talking about what you can feel, what you can smell, what you can taste and see, then ‘real’ is simply electrical signals interpreted by your brain”. Will we really value human endeavour that much more over a better than any human future AGI output? Will we be able to tell? And, will we even care if we can’t? Again, who knows?
Compared (no pun intended) to sinking hundreds of millions £/$/€ into a super yacht; buying a Ferrari or a Hermes’ bag looks like an impulse purchase, but if the AI future turns out like an even crappier version of Neill Blomkamp’s Elysium (with more billionaires and some trillionaires, but with an ever enlarging excluded underclass and squeezed middle), then perhaps the ultimate hedge investment is in Italian Sea Group (Euronext Milan). The have nots and the future have yatchs.
@Tom — Ain’t that always the way! A year or two ago you couldn’t open a podcast app without falling over a glowing review of Hermes. Simultaneously the share price was approaching €3,000 a pop. Now it’s nearly halved and the magazine profiles and talk of GRANOLAs has faded (not that it was one, but it did fit into the ‘luxury is Europe’s Mag 7’ story). As for RACE, I made some money from it a gazillion years ago when it was still inside Fiat, buying the latter as a break-up play when virtually no value was ascribed to the Ferrari brand! If only I’d stayed invested beyond the value story. Ho hum. Probably why I’m more interested in exposure via EXOR, but there you have the problem that outside of Ferrari (and appointing Sergio Marchionne to save Fiat back in the day) it’s not clear to me how good they really are as capital allocators. The market clearly doesn’t like them selling down their winner, anyway!
@DH — Well yes. As you know I’ve been including AI links in WR since 2022 so I’ve followed the story and flagged the explosion in infrastructure and demand from the start and earlier than most retail investor-focused commentators I’d say. 🙂 However we don’t get to invest in the past, we must buy into the future. Hence the share price moves of semis etc isn’t hugely relevant, except in a loose momentum sense and what it tells us about demand. Ultimately they are commodity suppliers (yes even nVidia, eventually anyway) and semis have a long boom/bust history. Good work anybody who has held on for the ride of course, and perhaps they will continue to gallop — I heard a JP Morgan strategist this morning suggest it’ll be two or three years before demand is satisfied. In the meantime, incumbents and rivals will be doing all they can to tap into the boom (see Intel’s resurgence, and rival chips from the likes of Google) and eventually that’ll likely produce a glut. Low P/Es are not buy signals in commodity markets, typically you want to buy on high P/Es. Again, I wouldn’t be at all surprised if they continue to run given the strength of the AI narrative but there are risks (Helium stuck on the wrong side of Hormuz anyone? 😉 ) and as always I prefer to look off the track. 🙂
As for fur coats, I mention that in the piece. It is a risk but Hermes has been experimenting with all sorts (including mushroom leather!) If people really do shift away from all animal products, then a new brand would have to work twice as hard to cut through with new materials, maybe, assuming Hermes can maintain its existing quality of course.
But yes, fashion is by definition subject to the whims of fashion. Risks, always!
Totally agree it comes down to moats and that both Hermes and (maybe even more so) Ferrari have wide and deep ones in branding / goodwill.
Also agree that (definitionally I’d say) commodity stocks don’t.
But, just because semis and memory stocks have been commodities hitherto, are they such now, and will they be such going into the future?
I just don’t know, but I also can’t be confident that anyone can say whether they will or won’t given the arguable moat case for Nvidia with Rubin GPUs + CUDA, Alphabet with TPUs, and bearing in mind that, for High Performance Computing in modern data centres, the sort of SDRAM we’re talking about is not the same product that you put in your phone, workbook or even gaming PC (thus, at least arguably, making a case to elevate memory stocks out of the commodity basket).
I’m not saying here that actually is now (or is in future going to be) the position, and obviously SanDisk and SK Hynix are in no way comparable to, say, Burlington Santa Fe railway in terms of unreproducible installed physical infrastructure moats, but there’s a case there to doubt that they’re just going to be as cyclical as they have been in the past.
I do like the idea of a hedge book basket of anti AI disruption stocks, say 50% beaten down SaaS (Adobe and Constellation Software I’m looking at you) and 50% high end luxury brands like Hermes and Ferrari. Sounds like a new thematic ETF! Not so keen on Diageo tbh. I think tastes really have changed there.
I hope you are right that there will always be a market for highly crafted, scarce and exquisitely engineered products. The moat that companies such as Hermes and Ferrari enjoy is that their IP is not available to the LLMs and long may this continue. Its all very well to have AI joining the dots in massive data sets, but it is a completely different thing to having a craftsperson producing their trademark saddle stitch.
If you are on the hunt for interesting, moat defined businesses, might I suggest NYSE: ZGN, SWX:GIVN or, for an AI themed punt TYO: 4063
I love the 2025 activity report that you highlighted and strongly advocate for all companies summarising their financial year in the format of a short graphic novel. I wonder if AI produced it for them, or whether it was meticulously hand-painted using brushes with bristles spun from the finest winter tail hairs of the Siberian weasel.
@TI Congrats on getting the Fiat/RACE unlock back in the day – I remember seeing the pitches, but not being smart enough to engage/understand it. Interesting what you say about EXOR allocation – I feel like I’m always hearing people gushing about Elkann, but I agree, I don’t feel I’ve really seen any firm evidence (Insurance in & out? Phillips? I don’t get it) – Marchionne was the guy.
One of the biggest reasons I like Hermes is the family – I think they have done an excellent job of management and succession so far (though I haven”t looked much to the next generation, however the CEO shouldn’t retire any time soon). Sure they’re not perfect (Nicolas Puech, phew) but many other families I am more sceptical of (e.g. Lauders seem to be in a mess, LVMH kids feel like nepos parachuted to the top rather than working their way up from the bottom). And while it feels all about the handbags, the fashion designers are really impressive – I love that they chose Grace Wales Bonner for menswear – I think she is amazing.
I got more interested in Ferrari when I realised that it is effectively a company that only makes the equivalent of the Birkin for men i.e. you can’t just walk in and buy one. Irresistible business model!
@Delta – I love Constellation & subsidiaries – I fear it could take a while for the narrative to recover, but I think the businesses will continue to execute.
Thinking about it, at least some of the reasoning behind this approach (Hermes and Ferrari) maps onto the methodology the Xtrackers MSCI Europe Consumer Discretionary Screened UCITS ETF (XZEC / IE00BNKF6C99), which is a tracker on the STOXX Europe Total Market Leaders index. From ETF Stream: “To qualify for the STOXX Europe Total Market Leaders index, companies must hold at least 40% market share in their sector with revenues above €1m. They also need to rank in the top 50% of their group for R&D or intangible assets relative to book value and demonstrate profitability with a gross margin of 50% or greater, or be in the top 25% for gross margin or return on assets. The result is an index which deviates significantly from typical Europe market cap weighted exposure. While UK equities see their weight slashed from 23.4% in the STOXX 600 to 9.7%, French stock exposure is amplified from 16.3% to a dominant 42.7%…. The index’s top positions were Airbus (5.4%), ABB (5.3%), Safran (5%), ASML (4.9%) and LVMH Moet Hennessy (4.9%) as at 16 September.” The “All in” TER (not OCF?!) is listed as 0.25%.
@Bassavoce — Yes, I think the bigger threat to extremely strong IP companies like Hermes or Ferrari (apart from, as @DH notes, tastes changing) is substitution in some very different AI-radicalised future. But as I say in the piece it’s hard to invest for that. Certainly I’m willing to punt on Hermes versus Generic Clothes Made Cheaper By AI Manufacturing Ltd, as I would imagine it will be a race to the bottom for the latter for margins etc and very hard to create a durable advantage. (See Buffett’s comments about machinery and textiles back in the 1960s/70s…)
@Mirror Man — Hah, I’m sure it was a real artist though must admit I couldn’t see the details on a brief skim. If it turned out to be AI generated it would probably have implications for my thesis here I think!
@Tom_G — Honestly, the Ferrari/Fiat value unlock is one of my proudest stock picking moments (and as the sledding has been tougher for me the past couple of years vs the Terminator of a global tracker I need some comfort now and then 😉 ) Actually, it came out of the blue for me. I was hunting for cigar butt type value in the US car manufacturers post the GFC when I found it hidden with the Fiat combine as was. For a while I thought I was crazy then saw a US hedge fund begin to publish on it. It did seem a bit too good to be true. All that said I can’t say I thought RACE would ever, um, race to the heights it achieved a couple of years ago in such short order!
@DH – Hmm, interesting. For me extreme per-stock picking like I’m doing with Hermes here is only tangentially related to factor investing. But I don’t dispute you’d probably see significant overlap on some metrics with such an ETF. (See Berkshire Hathaway returns decompiled into factors etc). Re: Constellation, I have a modest position that is currently down double digits :-/ Who knows re: AI etc, but there does seem to be a strong argument that vertical market software is so fiddly and atomised it could be a bit more robust to generalised AI etc.
p.s. No idea why the system is calling me a Maven here. I’m definitionally a Mogul! Presume it’s something related to my admin status.
More on that electric model Ferrari @TI mentions above (today from the DT):
https://www.telegraph.co.uk/cars/features/ferrari-gamble-electric-luce/
An eleccy Prancing Horse is a bit too much like asking for an almond milk latte to go with a melted swiss and feta cheese bagel.