Dear Reader,

On July 1, Elon Musk did something shocking…

Musk announced that Twitter was limiting the number of posts that users could view per day. And unless you’re logged into Twitter, you’re unable to view any tweets.

Much of Twitter was up in arms over the decision. But I know precisely why Musk did this. And it will have huge implications for artificial intelligence and social media companies going forward.

Let me show you…

Data Scraping

Musk made this move to limit artificial intelligence from “scraping” data from the Twitter platform. Large Language Models (LLMs) like ChatGPT are trained on data scraped from the web.

This can include online books and websites like Wikipedia. But data can also be scraped from publicly available posts from social media sites like Twitter. This data has immense value, and some AI companies are taking it without permission.

This is going to be a contentious issue going forward. And it’s already playing out in courtrooms.

One lawsuit alleges OpenAI, the company behind ChatGPT, illegally scraped over 300 billion words from the internet without asking for consent.

Two best-selling authors brought another lawsuit. It alleges ChatGPT could reveal details about the authors’ works. That would mean ChatGPT violated copyright law.

The stakes are high.

If the suits are dropped, developers will take it to mean they can train their AI with the entirety of the internet. If the charges hold, developers will likely be limited to data sets they have permission to use.

And this issue of data scraping is going to be very important for some social media sites.

More Than Lawsuits

In 2013, Meta earned $7.8 billion. This year it’s on pace to make $126 billion. During this 10-year span, Meta’s stock is up 950%.

Meta doesn’t charge its billions of users to use Facebook, Instagram, or WhatsApp. Instead, it serves up ads in a near-endless stream of user-generated content.

AI won’t kill Meta’s business model.

Users log in to interact with each other. Not just to get updates on the news.

Platforms like Twitter, which lean heavier on dropping breaking news, are more threatened.

That’s why Musk rolled out new rules set to limit the number of tweets users could view in a day.

He realizes that if people start going to AI for news and answers instead of Twitter, his business will lose revenue.

Other social media sites seen as treasure troves of user data are making similar moves.

Reddit, slated to go public later this year, placed limits on how developers could access the site’s data. Like Twitter, the company is trying to limit access from AI companies trying to scrape the data.

Whether it’s through lawsuits or codes that limit access, walls are going up to limit the reach of AI.

As investors, we have to understand how this will affect our opportunities.

A Roadblock to Growth

Even if the courts rule that AI can freely scrape data, social media sites will continue with limits and terms that slow AI development.

That benefits the current set of big tech companies.

Microsoft, Meta, and Alphabet control huge swaths of data on the internet. They can train AI just from their platforms… and limit access to startups.

And if data scraping continues to be a legal issue (which I expect it will be), then it means many companies will be slower to “unleash” a generative AI in their business. After all, no company wants to be named in a copyright lawsuit.

But this is actually great news for a company like Adobe (ADBE).

Its platforms, like Photoshop and Lightroom, are used by millions of content creators. It recently unveiled Firefly, a generative AI tool that allows users to type out their ideas and let AI do the hard work.

I like Adobe Firefly because it’s trained on Adobe’s stock photos that it has full rights to use. That means its corporate clients don’t have to worry about being sued for unknowingly using copyrighted material.

Adobe took it a step further by offering to pay any copyright claims related to any images generated by Adobe Firefly. This “indemnity clause” gives Adobe’s largest client even more peace of mind.

Compare this to graphics generated from text-to-image program Midjourney. In February, the U.S. Copyright Office revoked the copyright for a graphic novel created using Midjourney.

Events like this will hurt competing startups while leaving Adobe’s business model intact.

To read more about the AI opportunity with Adobe and two other stocks, click here.

Regards,

Colin Tedards
Editor, The Bleeding Edge