AI for All Mankind

Last night was a big one in the world of high tech.

It was Tesla’s long-awaited We, Robot event. Originally slated for August, We, Robot – a play on the name of Isaac Asimov’s short story collection I, Robot – was the Tesla team’s robotaxi launch event. And we’re pleased to say it was well worth the extra wait.

Despite what many in the media are saying, it didn’t disappoint. As a teaser, I’ll share some photos below from Tesla of the robotaxi (Cybercab) and the unexpected Robovan in the two photos on the right.

We’ll dig in deeper on Monday to better understand the future of transportation.

Hope everyone has a wonderful weekend.

Jeff

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AI – To What End?

Jeff,

I understand to some extent the artificial intelligence (AI) buildout, but I lack the foresight, and at least the imagination, of what AI will enable us to do, or maybe what it will do for us.

I know there’s an effort to get better at building autonomous robots, enabling students to summon up elaborate essays and theses, developing bio-engineered proteins and vaccines, auto-driven cars, and all the kind of stuff you’ve written about in the past. Still, obviously, this is not the limit of the potential of AI.

The fantastically huge amount of money pouring into these data centers, that MSFT has secured 20 years’ worth of nuclear energy to power their data centers, obviously leads us beyond these pedestrian needs.

But what is the goal? What is the end game? To improve the life of man? End hunger? To create a perfect world where manual labor becomes a thing of the past? To create better television? To wind up in a world like Logan’s Run? Where are we really headed? Is it a fantasy and we’re just creating a huge bubble? Thanks.

 – Graham L.

Hi Graham,

I love it. You’re taking one step further back, looking at the big, big picture.

You’ve accurately listed several very tangible applications of AI already in use today, already climbing the scale of widespread adoption, and will change life as we know it… for the better.

But you want to know more… what happens after that? To your point, what’s the end goal?

Very few think about that, and for good reason. No single person, government, or company has the wherewithal or the capital to achieve one singular end state. And the development and application of artificial intelligence is far too widespread.

It’s already everywhere. Most just don’t realize it yet. Trying to control it would be like trying to control the flow of a river with our hands.

There certainly could be a lot of answers to this question, but I’ll share with you how I think about it. And the goal definitely isn’t something like Logan’s Run (a classic sci-fi movie, though).

The end goal is abundance, human longevity, and longevity as a species.

To achieve that, the world will continue to need ever-increasing amounts of energy, specifically the kind of clean energy that comes from technologies like nuclear fission and fusion.

Abundance will bring the remaining ~700 million around the world still in poverty, out of poverty. It will also free the human race from dangerous, monotonous, and physically demanding labor. This will provide us with more free time to enjoy life as well as the ability to focus on higher value, higher productivity work empowered by AI.

And yes, over a long enough timeline, the human race will have to become a multi-planetary species if it is to survive.

Not only is there a risk of the human race having an existential crisis – like a nuclear world war – there are natural risks like a massive asteroid crashing into the planet or another (far more dangerous) extremely viral, engineered bioweapon.

Most of us would prefer a peaceful world full of abundance. Our biggest challenge as a race won’t be a technological one. It will be fighting and resisting those who wish to cause harm and employ technology to take tyrannical control over the world’s population.

This is why it’s so important that the good forces accelerate.

We have to show the world what’s possible and make it tangible so the value is easily understood and meaningful in our daily lives. It must be decentralized and not centrally controlled. If decentralized, it will remain out of the control of any one government or entity.

No matter which direction things go, I’ll continue to research and write about this incredible period we’re going through and share ideas about how we can benefit from these changes, as well as invest in them.

Token Trading

Hi Jeff and Team,
So great to have you back on board bringing back your legendary positivism and enthusiasm toward new technologies!

I have a question, or is it a suggestion? When it comes to delivering an alert from the Perceptron, surely it’s not best to act on it going back and forth from fiat to crypto?

Will you provide recommendations or guidance on how to act on it, like it can be using a pair that includes USDC, PAXG, or even BTC or ETH? Surely there will be better ways to act on future alerts depending on the market situation, or maybe just to be ready to jump in the next trade easily and, most importantly, at a lower cost. Thank you.

– Christophe Des R.

Hi, Christophe. Thanks for writing in.

I’m glad you asked about this. I’m going to ask our senior analyst over at Neural Net Profits, Ben Lilly, to answer this one. Here’s Ben…

Should we trade out of a position and into another trade or token? This is a great question as it illustrates something very unique to this asset class… We are not as limited in our moves as we are in traditional financial markets.

Typically, when we trade out of a stock position, we move into U.S. dollars. We aren’t moving directly from one stock to another. We’re not moving into another asset or a commodity.

But in the cryptocurrency market, we can. The cryptocurrency market is much more This means we can move from one token, directly to another.

Now, if the Perceptron is alerting us to exit a position while also alerting us to enter a different position, we will mention the option. From what we’ve seen from the Perceptron to date, this will likely be rare.

What might be more common is the ability to trade into a stablecoin.

Now, there was a time when trading directly into a stablecoin meant lower fees as opposed to the U.S. dollar for fiat currencies. This isn’t so much the case anymore. Most exchanges don’t differentiate between the two and don’t charge a fee to make that conversion.

Coinbase, for instance, allows you to cash out USDC – the stablecoin pegged to the U.S. dollar – directly into your checking account for no fee.

There is also no tax benefit for moving to a stablecoin instead of a fiat currency.

For the most part, there’s minimal difference between how cash and stablecoins are treated by a centralized exchange… Except for one thing.

Exchanges often pay out a yield to hold a stablecoin. This makes it comparable to holding cash in a yield-bearing instrument. We can put our capital to work even as we wait for the next Perceptron signal. It’s a nice benefit.

Coinbase currently pays 4% for holding USDC.

The caveat here is that crypto deposits are not insured or guaranteed by the FDIC or SIPC.

That means if Coinbase were to become insolvent, the government wouldn’t insure you up to its $250,000 account limit.

This tells us that the ultimate decision on whether to use stablecoins or cash in your account is a personal one.

Some might be more comfortable converting back to cash, others will be fine to hold in USDC. If holding in USDC, be sure to do so at a well-run digital asset exchange like Kraken or Coinbase.

There is quite a bit of nuance to it all given how diverse and large this asset class is becoming. That’s why we encourage your feedback and questions. This is an incredible, high-growth asset class that I encourage us to become more familiar and comfortable with.

Exciting news for those who want to profit from the crypto market but aren’t as keen on trading it – I am planning to expand our coverage of blockchain technology and cryptocurrencies soon.

The future product will be a buy-and-hold research product which will be a compliment to the higher-frequency trading style of Neural Net Profits or an alternative for those who shy away from trading altogether.

Evaluating High-Growth Opportunities

Hi Jeff,
The big technical companies are involved in a number of new ventures sometimes outside their main business, like Microsoft in Nuclear Fusion. It is hard to evaluate the investment opportunities in these companies because their future vision and the projects they get involved in are not public.

So the question is how to evaluate a company that is involved in futuristic technologies. And why Meta is going up when other leaders have become stagnant in the last 6-8 months? Thanks.

– Satyan S.

Hi Satyan,

Two questions there…

Yesterday we explored the topic of a high-tech company with a massive portfolio of investments. In The Bleeding Edge – The Great Vampire Squid of Healthcare, we took a look inside Alphabet’s (Google’s) $2 trillion of investments, most of which have been outside of its core business of advertising.

Highly profitable large tech companies that generate billions in free cash flow each year are always faced with a dilemma. What will they do with all that cash? Stable companies that aren’t growing very much tend to use that cash for either dividend payments or buying back shares.

But for high-growth companies in dynamic industries where there is still a lot of opportunity, executive teams prefer not to return the capital via dividends.

Growth companies tend to be valued on their expectations of future cash flows, not on their dividend payments. So they tend to spend in two ways: buying back shares and making investments in other companies that will benefit their business in one way or another, even if it is on a very long timeline.

Giving back cash in the form of dividends is essentially saying, “I don’t have any more good ideas for putting that capital to use for our business.”

Microsoft (MSFT), Alphabet (GOOGL), and Meta (META) are all prolific investors in companies outside of their core businesses. It’s a common corporate strategy. And yes, almost all of their investments are in private companies where there tends to be less information available.

To your point, because they are still private, their websites tend to have a limited amount of information. A great source of information can be discussions with the executives themselves at those companies or via information shared with existing or prospective investors.

It is also very useful to study a field at large. Understand the science/technology, develop your own competitive landscape, understand the executives involved in the company and their background, research any scientific research or patents that they may have been involved in, and speak with other executives in the industry.

The information is there, it just takes a lot more work and hustle to piece it all together.

As for Meta, we explored this topic a couple of weeks ago in The Bleeding Edge – The Next Computing Interface. Meta’s stock had fallen 75% from its highs in 2021 to its low towards the end of 2022 because of its very poorly designed strategy to create its own metaverse.

To the company’s credit, it reversed course, pulled back metaverse-related investments, and went all in on investing in AI. And it also leaned back into its core business of advertising. These two things are what sent the stock up more than 560% since the 2022 lows.

Meta is still a high-growth company despite its size. This year it will generate $161 billion in revenue at 81% gross margins resulting in $86.5 billion in EBITDA and $46.3 billion in free cash flow. By 2026, revenues will exceed $200 billion.

It’s an advertising powerhouse that, just like Google, has mastered the art of data surveillance and collection and monetizing that data by selling access to advertisers.

Starfighters Space

Jeff, you never cease to amaze me with the care and thought that you put into your research and answers from your subscribers.

As a Brownstone Unlimited member, I have invested in 15 of the Day One recommendations you have made and have only made private investments that you have recommended.

That being said, I also had heard about Starfighters Space’s raise, and this was going to be the first investment I was going to make outside of Day One on my own.

I did notice that there weren’t any large investors listed and I didn’t see much revenue from previous years, but the concept of using supersonic planes to launch satellites much cheaper than Space X – and their association with Space Florida and other partners – seemed like they have been placed on the fast track to be successful.

Obviously, even with my finance background, we all still lean on your expertise in this area. Clearly, this doesn’t meet your standard to recommend to us, but is it possible that this company has a great business model that could challenge Space X at some point which may override your concerns?

 – Todd L.

Hi Todd,

I did receive a few additional questions on this company this week. Another referred to Starfighters’ potential cost advantages of being able to launch satellites into orbit more cheaply than SpaceX could.

This is an interesting topic for a couple of reasons, which I’ll provide important context on below. The devil is in the details, and if we don’t have a framework for evaluating a private deal, it is very easy to be misled.

For the benefit of new readers and those who missed last week’s AMA, The Bleeding Edge – Never Miss the Brownstone Beat, I responded to a question about Starfighters Space – a private company that provides pilot training on F-104 fighter jets and also pilots fighter jet flights for civilians.

It’s currently going through an aerospace-focused rebrand and is trying to raise capital via Reg A+ crowdfunding regulations and has caught the eye of quite a few Brownstone readers. However, as I wrote last week, I have some serious concerns…

It’s important to note that there are no notable institutional investors who are active in the aerospace industry backing this company.

The company had zero revenues from operations in both 2022 and 2023 and only small amounts of revenues in those years from training and test flights. This is a company with more than $11.5 million in liabilities that will suffer dilution due to a number of issued warrants and convertible debt that has been issued.

It’s raising at a $65 million valuation which, from my perspective, is way too high, and with a number of related party transactions that give me concern.

Too many red flags for my liking. This is not a deal I would ever recommend.

Your question was whether or not this company could mount a competitive offering to SpaceX because it claims that it will be able to launch satellites more cheaply than SpaceX.

First off, let’s consider the basics. And F-104 is a fighter jet that can carry a rocket within which there is a payload (i.e. the satellite). This means F-104s are only capable of carrying very small satellites – small enough to fit inside the cone of the rocket carried under the belly of the F-104.

The payload is only about 100 kilograms (kg). That’s it.

The SpaceX Falcon 9 stands 70 meters tall (229.6 feet) with a payload of 22,800 kilograms to low Earth orbit (LEO). These two companies aren’t even operating in the same space.

But what’s far more concerning is that Starfighters Space uses incorrect data in its offering.

Note what it claims to be the Falcon 9 cost/kg to low Earth orbit – $16,093 (there was even a typo of the cents symbol).

The actual cost to LEO per kg is as low as $1,520, and typically well below $5,000/kg. Note Starfighters’ “initial” costs of $22,000 dropping at “scale” to $15,000. SpaceX is already as low as $1,520/kg and once the SpaceX Starship is operational, those costs will drop to around $100/kg.

Even when I look at the RocketLab data, the above image claims RocketLab’s Electron is capable of 150 kg to LEO, but the actual number is 300 kg to LEO.

These numbers appear to have been chosen to make Starfighters look more competitive than it actually might be. This is false information which paints an incorrect picture of the investment opportunity. This kind of nonsense makes me upset as investors are being misled.

I stand by my original assessment. Too many red flags. I’d recommend steering clear of any company that uses misleading information, is raising capital at inflated valuations, and has messy accounting and related party transactions. This particular offering serves as a good example of what to look for and avoid.

That’s it for this week’s AMA. Thank you to everyone who wrote in. And, as always, if you have your own question you’d like answered or have feedback for us, you can reach us right here. My team and I love hearing from you.

Have a great weekend, everyone.

Regards,

Jeff