Over the next decade, I don’t think there will be a single company on the stock market that doesn’t use AI in some form.
That might sound like a bold claim. And it is. But there is precedent for it.
Thirty years ago, the internet was a niche technology used by only a handful of people. Today? It’s integrated so thoroughly into business that we can’t imagine life without it. Some businesses are using the internet to produce new products, connect with customers, or simply make operations more efficient.
But the bottom line is that the technology is completely ubiquitous.
AI will be every bit as transformative as the internet, smartphones, and cloud computing. If not more so.
Consulting giant, McKinsey, sees AI adding $13.6 trillion to $22.1 trillion in economic value over the next decade. On the high side, that’s nearly the entire GDP of the U.S. in 2021.
Of course, this amount of growth won’t happen all at once. It’ll move through in waves.
That’s why I’ve taken to carving out the AI opportunity into two broad categories: Innovators and adopters. For this week, we’re going to have a closer look at these two categories. What we will find is that there is plenty of nuance in each. And there will be overlooked opportunities for investors.
Today I’m going to focus on the opportunities from AI innovators.
I would broadly break out the “Innovators” category into the hardware and software companies that are advancing AI tech.
Examples of hardware companies are the likes of Nvidia and AMD. They are building the next generation of chips that are capable of powering large language models (LLMs) like the one ChatGPT uses.
Hardware is also where we saw the first big stock moves.
On June 13, Nvidia became the first chip company to join the +$1 trillion market cap club.It sits alongside tech companies like Apple, Amazon, and Microsoft.
Nvidia had an early lead thanks to its A100 chip. But it won’t be able to bring on the AI revolution alone.
During the 90s, hardware companies like Cisco, Intel, Qualcom were some of the best performing stocks. They built the hardware to make the Dot-Com revolution possible. And they were incredible investments during their most innovative era.
Between 1995 and 2000, these hardware investors saw gains of 2,640% from Cisco, 930% from Intel, and 5,770% from Qualcomm.
We are in the very beginning of the AI revolution. Nvidia’s made its first big move. But other hardware companies have not taken off and are working on products to enable mass AI adoption.
Now, let’s take a look at the software side.
Software innovators are the companies building AI models that can consume untold amounts of data to help inform, create, and achieve results.
That includes OpenAI which built ChatGPT-4. ChatGPT is a large language model (LLM) with more than 100 million users.
OpenAI grabbed the world’s attention in November 2022 when ChatGPT-3 was released. People were both excited and terrified of its ability to answer prompts as if it were a human researching and responding in mere seconds.
Microsoft owns a significant stake in OpenAI and uses ChatGPT’s AI in its Bing search results.
During the cloud computing revolution of the past decade, software companies were some of the biggest winners.
Amazon and Microsoft control 55% of the cloud computing market. Over the past decade, they’ve returned 1,080% and 790% to shareholders when including dividends.
These companies will be big figures in the AI scene. But we’ll also see smaller companies emerge as leaders and deliver similar returns over the next decade.
The important point here is that AI is a major leap in technology. As investors, we can buy shares of innovators to profit from this mega trend over the next decade.
I’ve already shared one of my favorite AI hardware companies, AMD, in a previous letter. You can read more about it here.
But I haven’t shared any software innovators… yet.
In my August issue of the Near Future Report, I’ll be sharing my favorite software innovators with paid readers.
But what I would ask readers to know now is that artificial intelligence will not be a niche technology for long. And the “obvious” investments like Nvidia will not be our only opportunities.
Early hardware innovators like Cisco and Intel benefited from the rise of the internet, but they were hardly the only beneficiaries.
As the technology was adopted, it was the adopters that saw some of the largest returns. These are companies that integrated the technology into their business to produce better products or services. Netflix is a perfect example. Would the company be the $860 billion giant it is today if they were still shipping DVDs by mail?
Of course not…
Tomorrow, I’ll share how best to understand the opportunities among the adopters.
Regards,
Colin Tedards
Editor, The Bleeding Edge
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
