AI Adopters Are as Important as Innovators

Dear Reader,

Welcome to the weekly mailbag edition of The Bleeding Edge. If you have a question you’d like me to answer in a future edition, write to me by clicking right here.

Suggesting an insurance company who is using AI is not in the spirit of Brownstone Research in the sense that they are not tech companies. Why not stick with tech companies with the potential you talk about? Aren’t there many of those?

– Gordon

Gordon, great observation and question. It won’t happen overnight, but AI has the opportunity to revolutionize the insurance business.

Take for example how car insurance works. Today, it’s based on an estimated amount of miles driven, location, driving history, and make of car. In the future, far more data will be interpreted in determining car insurance rates. The actual safety risk of roads you take, the time of day, how often you have self-driving activated, and the actual miles you drive. The rate you pay will fluctuate month-to-month based on this data rather than the flat rate system that exists today.

Inflation in recent years has hit auto insurers hard. With used and new car pricing surging, insurers are struggling because the replacement costs have outpaced premium increases.

If insurers could capture real-time data and use AI to make monthly rate changes, they wouldn’t be losing to inflation. The technology is here… they just need to put it into action.

The industry is going to need to change, and the insurers that do this quickly will capture market share and gain profits.

Similar to how Google’s Nest Thermostats and Amazon’s Ring Doorbell disrupted the boring home monitoring industry, a tech-forward company will disrupt the insurance industry faster than an incumbent stalwart.

This also speaks to an important strategy of ours. We will, of course, focus on the innovators of bleeding-edge technology. But there is another class of companies, which I call “adopters,” that will benefit from this technology.

Some of the adopters might not be as exciting as the pure-play technology stocks, but they still have incredible potential. And as investors, that’s what we care about most. Also, these adopters get less attention than the pure-play tech companies, which can be to our benefit. For all these reasons, they deserve our attention.

I’m excited to see how your recommendations go and supportive of the changes you’re making.

I can see how big cost savings through massive reductions in staff could be very positive for a stock. But what about the fact that a huge percentage of people will be jobless due to AI? Massive unemployment in this country is not good for the economy or a company’s revenue. How would a 50% unemployment rate (or some other sky-high and historic level) impact your thesis?

Thank you,

– Shawn

This is a great question, Shawn, and one I’ve spent a lot of time researching and considering. I plan to write more thoroughly on this topic in a future issue.

Throughout history, there’s been an exceptional amount of technological advancements in automation. Over the past century, nearly every decade has been marked by significant progress in some form of technology.

Cities grew as farmhands migrated to work in factories. Factory workers have been augmented by robots and automation. Arcades, record stores, movie rentals, and bookstores were fairly common at one time – only to be replaced by digital devices.

Through all of this change, there’s one constant. Our lives become more comfortable, secure, and prosperous.

AI seems like a giant leap into uncharted territory. But we have a history of turning this progress into prosperity.

Will AI lead to mass unemployment? History tells us that new technology always changes the nature of work, but it has never wiped it out completely. Whether it was the invention of the automated looms, the printing press, or even the internet, the nature of work changed, but it never disappeared.

My prediction is that it will be the same with the adoption of AI. Ten years from now, I do expect there will be fewer menial, time-consuming jobs. But the adoption of AI will also produce new lines of work for human beings.

A perfect example would be a company like Amazon. It has been adopting artificial intelligence and smart automation into its logistics for years. And yet, Amazon is an incredible job creator.

We’ll of course follow this trend, but I’m not convinced that sky-high unemployment thanks to AI is in our future.

I understood that much of the biotech industry is using AI for developing new and better medications, that AI was used to map all the proteins in the human body. One of the reasons I joined Brownstone Research is because there was a section for investing in biotechnology, and I very much enjoyed reading the articles about the incredible things being done with AI and CRISPR. Isn’t there anybody on your staff familiar with the biotech industry and what is being done with AI in that industry? Are we going to ignore how AI is being used in the industry?

– Greg L.

Hi, Greg. The biotech industry is never short on incredible stories. It’s a great theme to research and read about. In my free time, I watch videos on scientific breakthroughs in medicine and consult with my wife who works in the healthcare industry and has a degree in science.

But great stories don’t always make great stocks.

Being familiar with the biotech industry and actually making money investing in these stocks are two completely different things. Even harder is consistently making money.

My uncle was a world-famous biochemist that worked at Lawrence Livermore Lab in California. He shared the same sentiment about the biotech industry from an investment perspective as I do.

For all those reasons, biotech is not an area I expect we will focus on in the years ahead.

But you are absolutely correct that artificial intelligence applied to biotech and drug discovery is an area of focus for us. One company in our Exponential Tech Investor portfolio is a perfect example.

Out of fairness to paying subscribers, I won’t name it here, but I can say it sits at the intersection of drug discovery and big data/machine learning. And the great thing is that this tech company doesn’t need to “bet” the future of its business on one successful drug. It can simply sell its technology to the biotech/pharma industry for use in drug discovery.

So, you’re correct, Greg. While we won’t be following biotech, we absolutely are paying attention to the applications of AI in this field. 

This is a thumbs up for Colin Tedards. I loved your video and approach to Exponential Technology. I am excited and very comfortable with where you are taking us.

Sincerely,

– Mark

Thank you, Mark! I’m very excited about where technology is heading, and I promise to work hard to find the best investment opportunities.

Thanks for stepping into the role and providing some much-needed portfolio management expertise.

As an occasional trader with a high level of trust in those I follow, I would suggest a couple of things:

1) The narrative newsletters you provide are great if I have time to read them.

2) For those of us that have your service for a bundle of portfolios, please provide a single integrated portfolio in one place with up-to-date buy-sell notes.

 – Paul

Thanks for writing in, Paul. I’m glad to hear you’re enjoying the newsletters. As far as portfolio integration goes, I’ll speak with my team and see if we can make that possible.

Regards,

Colin Tedards
Editor, The Bleeding Edge