AI’s Next Leap

Colin’s Note: As we’ve said many times in these pages, the artificial intelligence rollout will occur in three stages: hardware, software, and then, finally, everywhere.

The AI rollout is in full swing now. The hardware stage has been rolling for the past year or so now with companies like Microsoft and hardware darling Nvidia leading the boom… And the second stage is already underway.

So, this week at The Bleeding Edge, we’ve been focusing on one question: what’s next for AI?

The days of the rising AI tide lifting everyone in the tech sector are over. Companies touting how they’re integrating AI into their business models are going to have to start posting results or risk falling behind.

The name of the game now is innovation.

It’s all in today’s video. Just click below to watch.

Bleeding Edge subscribers, hopefully, you guys are doing well. Happy Friday.

All week we’ve been asking ourselves the question, what’s next with artificial intelligence (AI)? On Monday, we talked about how through the rest of 2024, non-technology firms are going to reap the benefits of AI.

JPMorgan and other financial institutions, for example, will use AI to improve their performance and efficiency. These companies report their earnings over the next 30 days. I would expect some of those results to show up there.

On Wednesday, we talked about the intersection of open-source and proprietary large language models. You have billionaires like Elon Musk and Mark Zuckerberg spending millions of dollars training AI models only to release them to the public for free. Ultimately, this is going to lead to really a wider array of AI applications and make startup costs much, much lower for many companies out there.

But if we take a step back today, we can see how the past 12 months have been filled with a lot of surprises.

 It started with ChatGPT’s dramatic rise to become one of the world’s most popular software tools. You just don’t see that very often.

Other startups like Midjourney and Anthropic gained huge popularity just over the past year. Even Microsoft’s AI Copilot tool was just an idea this time last year.

And the poster child of AI stocks, Nvidia, didn’t actually start showing jaw-dropping results until May of last year. So it hasn’t even been a year.

The rise of AI in the minds of Wall Street and investors like ourselves, it’s possibly too fast. But, look, I believe the days of big surprises to the upside are over. Let me explain.

We’ve seen just over the past few weeks, several AI-related companies report earnings only to see their stocks fall quickly in disappointment.

The data and storage application company Snowflake saw its shares fall 31% over the past month. Last week, semiconductor company Marvell reported disappointing earnings and has seen its shares drop by about 8%.

Just today, shares of Adobe, the software maker plunged 15% on the fears AI could usher in new competition.

So what does this mean? Is the AI trade over? Is the bubble bursting? Do we sell all our tech stocks and move on?

Well, no, absolutely not. But the days of the rising tide lifting everybody in the tech sector… that’s over. Companies have been able to get away with putting AI in a press release – or maybe even putting AI in a product – and seeing its stock go up. But this tactic is as old as time in the tech sector.

A few years ago, it was “just put blockchain in a press release.” Before that, maybe it was “mobile and applications” or it was “cloud.”

And at one time all you needed was a .com domain name and you could go public and raise hundreds of millions of dollars. But at some point, you have to deliver the results.

If a company sells hardware, you have to sell that to the major data centers run by Microsoft, Amazon, Google, Oracle, or IBM. If it’s a software product, the added benefit of AI will need to be great enough to get users and enterprises by the millions to pay a monthly access fee for it.

And both hardware and software have to be durable enough to withstand the competition coming from all angles.

But the real secret for both companies and investors over the next 12 months comes down to one single word. It’s a word that has defined the technology sector and is a big reason why many of the best-performing stocks of all time come from technology.

What Wall Street will reward over the next 12 months is innovation.

It just simply won’t be good enough to release a language model that is just slightly better than ChatGPT… or simply add a search box… or a Copilot feature to an existing software application. The market won’t be surprised and delighted by this. Your stock’s not going to skyrocket on the back of that.

Instead, you will need to innovate.

I have my eyes on three innovative areas of the AI sector, all of which we’ve covered here in bits and pieces on The Bleeding Edge. But next week we’ll outline them more in depth each time we join you.

So join me next week as we uncover the areas of AI where innovation is set to take Wall Street by surprise and make many early investors very, very wealthy. Until then, I hope you have a great weekend. We’ll see you again next week.