Dear Reader,
It’s official. We’ve entered the early stages of the next great tech bubble.
It’s not the entire market – not yet at least. This bubble is centered around artificial intelligence, kicked off by the release of ChatGPT by OpenAI on December 1.
The underlying technology – large language models developed using neural networks – has been around for years. But something changed in the last three months. The technology improved, as did the semiconductors used to train the artificial intelligence, leading the number of parameters in the training sets to jump from tens of billions to hundreds of billions.
So we’ve now crossed the Rubicon. The technology is far from perfect, yet it clearly has incredible utility. And it doesn’t take much extrapolation to see what it will become by the second half of this year.
In the last couple of days, there has been rampant speculation that OpenAI paid a large sum for the domain AI.com. Numbers being thrown around are in excess of $10 million. That wouldn’t surprise me at all considering a domain like Hotels.com sold for $11 million years ago. If AI.com was indeed sold, I suspect it was for a far higher figure.
While the sale hasn’t been confirmed, what we do know is that AI.com redirects to chat.openai.com. That’s the landing page for OpenAI’s ChatGPT generative AI.
Days ago, OpenAI announced a new subscription plan for premium access to ChatGPT. For just $20 a month, a user can have unrestricted access to ChatGPT at all hours. There are already more than 100 million users of ChatGPT today, a metric that it hit in just two months. Where will we be by the end of the year? A billion users?
It doesn’t take much to understand the economics. At just 10 million premium subscribers, OpenAI will be generating $200 million in revenue a month, which is $2.4 billion a year. That’s just on subscription revenues – nothing else. And that revenue almost certainly comes with 70–80% gross margins. That’s why OpenAI now has a valuation of $29 billion.
OpenAI is now cashed up with an investment of $10 billion from Microsoft. And if it did buy AI.com, the seller knew it. When a company is sitting on $10 billion, what’s $50 million to own “the” top artificial intelligence domain? Chicken scraps.
We’re at the beginning of an epic bubble.
That’s why OpenAI, Anthropic, Cohere, and so many others are raising hundreds of millions, even billions in venture capital rounds at massive multi-billion valuations. Private deals focused on artificial intelligence are flying right now. And the same thing is happening in the public sector.
“The” artificial intelligence ticker (AI) was smartly taken by AI firm C3.AI. The stock chart of C3.AI looks like the trajectory of a SpaceX Falcon 9 rocket launch. It’s up almost 150% since its December lows.
It’s like a light bulb suddenly switched on for Wall Street. I admit, for many, understanding the power of AI can be difficult. Generative AI made it simple. Using it is like a dopamine hit. Ask it to generate an image or a text response and it happens in seconds. And it’s not a novelty. It’s already being widely used to enhance productivity and help us humans accomplish time-consuming tasks in seconds – recovering minutes, if not hours, of our day.
We’ve entered the bubble, and it’s just getting started. Venture capitalists and private equity firms are scrambling to get exposure at any valuation. And Wall Street is returning to their spreadsheets to update their valuation models.
Not only will there be an explosion of private companies developing in this space, but existing software companies that have a large install base are in an incredible position for explosive growth. Many of them have been using AI and machine learning for years. But now that technology is supercharged.
As companies employ this bleeding edge artificial intelligence, it will not only make their own businesses more efficient and profitable, but it will also lead to explosive growth in the software sector and beyond.
I want to be clear: There will be incredible investment opportunities in this space in the months and years ahead. But we’ll want to navigate this trend carefully.
With every disruptive technology – whether it’s the internet or blockchain technology – there are visionary companies that provide incredible returns. But there’s also the pretenders, looking to “cash in” on the excitement.
For every Amazon, there was a Pets.com. For every Ethereum or Bitcoin, there was “Long Blockchain” – an iced tea company masquerading as a blockchain company.
Our goal will be to sperate the wheat from the chaff. Find the truly valuable investments, and steer clear of the pretenders. We’re up for the task.
We will likely have a few more volatile months to work through as the Federal Reserve fiddles with its monetary policy, but once things settle down and we get back to growth… hold on, because we’re in for one hell of a ride.
This is going to be a break-out year for genetic sequencing and personalized medicine.
As a reminder, personalized medicine represents a sea change in healthcare. Today, we typically only seek treatment once symptoms present. And very rarely does the industry treat the root cause of disease. Very often, it’s just managing symptoms. This is what I’d consider a “reactive” form of medicine.
Personalized medicine is different. Medical treatments will be tailored to our genetic makeup. And thanks to genetic editing technology, almost all diseases could be cured “at the source.” Genetic sequencing technology is a big part of that. It will let us “blueprint” our entire genome.
We looked at genetic sequencing giant Illumina’s new sequencing machine back in October. If we remember, the new machine lowers the cost of sequencing a full human genome down to just $200.
That was a major tipping point for the industry. At just $200, genetic sequencing became cheap enough for insurance companies to cover it. And that’s the key to opening up the world of precision medicine to the masses.
Well, Illumina’s Chinese competitor, Complete Genomics, just made a major announcement of its own.
Complete Genomics revealed a new sequencing machine that can produce 2.5 times the output of Illumina’s new sequencer. And as a result, this machine can sequence a full human genome for just $100.
This is huge. We have been waiting for this moment for decades. And it’s finally happened.
$100 has long been the industry’s target. At that price-point, there’s no reason why every insurance company won’t cover genetic sequencing.
Source: NIH
As we can see, it’s been a long journey for genetic sequencing.
Back in 2001, it cost $100 million to sequence the human genome. Just over twenty years later we’ve finally hit our target price: $100.
And as the chart shows, this decline in price has been faster than Moore’s Law. Longtime readers will know Moore’s Law has represented exponential growth. And the affordability of sequencing is outpacing it.
And to think – the big breakthroughs came just within the last two months.
So now it’s about to become hyper competitive. Illumina has already launched its latest sequencer at the beginning of the year. And Complete Genomics will start selling its new machine in a few months’ time.
I think we’ll see insurance companies pick up coverage for both. Acquiring both will be in their best interest because understanding an individual patient’s genetic makeup actually saves cost and time in terms of treatment. Said another way, the insurance company ends up with less health insurance claims.
And once that happens, we’ll watch the healthcare industry completely transform in a very short period of time.
Not only will insurance companies benefit from this change, so will patient outcomes. The healthcare industry will be able to avoid prescribing the wrong therapies to a patient and take the correct approach from the start. Not only that, but it will also be possible to select drugs that are most suitable for an individual patient and avoid those that are most likely to cause side effects. And in time, personalized therapies will be commonplace where a generic therapy won’t do the trick.
And for readers wondering, yes, I do like Illumina as a long-term play on this trend. Complete Genomics may be giving the company some competition, but Illumina is still the biggest player in this space, with a bit more than 80% market share. And because this is still a greenfield opportunity, both companies have a lot of room to succeed in the years ahead.
It’s not just personalized medicine that’s set to break-out this year. 2023 is the year augmented reality (AR) technology goes mainstream as well.
We’ve seen both Apple’s and Samsung’s plans to launch their first full-scale AR headsets this year. Well, Meta (formerly Facebook) is joining the fray with a strategic launch of its own.
Meta just announced its new Quest 3 headset. It will build upon Meta’s Quest 2 virtual reality (VR) product… with one major difference. The Quest 3 will be Meta’s first full-scale mixed reality product.
The Quest 3 will feature outward facing cameras that capture the user’s surroundings in real time. Then it will overlay high-resolution graphics and video in the user’s field of vision. This will provide a fully immersive mixed reality experience.
And here’s the strategic part…
Meta’s going for mass market adoption right off the bat. The Quest 3 will be priced between $300 and $500. That’s the sweet spot for mass adoption of a new consumer electronics product.
For comparison, Apple is launching a high-end version of its AR headset first. It will be priced above $2,500. This is the product that I’m predicting Apple will release in the May/June timeframe.
Apple will then follow-up with a mass market version of its headset. We’ll likely see that next year.
Clearly, Meta is looking to beat Apple to the punch here. Meta knows how much is at stake. And social media and chat applications will be widely used on augmented reality platforms. The only question is whether or not that’s on Meta’s hardware, Google’s hardware, or Apple’s. The company clearly hopes to capture market share immediately with its mass-market device and get a leg up on its competition.
Once again, we’re seeing some of the largest technology companies in the world gearing up to battle for dominance in the next consumer electronics craze.
And while we might think buying shares in Apple or Meta would be the easiest way to gain investment exposure, my preferred strategy is to focus on the smaller, strategic suppliers for these new products. That’s something that my subscribers in Exponential Tech Investor already have exposure to. And there will be opportunities later in the year.
The Max Planck Institute just discovered a new exoplanet about thirty-one light years away from Earth. On a galactic scale, that’s pretty close.
The planet is very similar to Earth in mass. It’s rocky. It likely harbors lakes and rivers. And it appears to have an atmosphere that may be similar to Earth. Said another way, it has all of the right elements to be habitable, and potentially already harbor life.
Unlike our Sun, the planet orbits a red dwarf star called Wolf 1069.
Here’s an artist’s rendering to get our imagination going:
Source: NASA
Here we can see an image that looks like it could be of Earth. There’s rocky terrain surrounding a lake with the Sun over the horizon.
Except that’s not the Sun. It’s Wolf 1069. And because it is a red dwarf star, it is not as hot as our sun. The planet is in an orbit that is much closer to its star compared to the distance from Earth to our sun. The planet is also tidally locked. Half the planet is in perpetual darkness, and the other half has eternal daylight.
So it’s getting very exciting. All the latest advancements with telescopes like the James Webb Space Telescope have given the world of astronomy and astrophysics a remarkable boost. The pace of discovery right now is unlike anything I’ve ever seen in this field before.
And it’s not slowing down.
We’re starting to see new projects form specifically to analyze the atmospheres of exoplanets such as this one. That research will give us greater insight into whether these planets may in fact harbor life.
So buckle up. The age-old question regarding whether we are alone in the Universe may get answered very soon…
Regards,
Jeff Brown
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.
