Follow the 7%

I keep hearing CEOs say they’re “adopting” AI.

Four times a year, I jump on dozens of earnings calls. These include tech giants like Meta, Microsoft, and Nvidia… but I also tune into many smaller companies across industries. This chart with data from Bloomberg speaks for itself.

Over the past year, I’ve noticed that nearly every company has an AI strategy. The consulting firm Accenture found that 75% of companies claim to have adopted AI.

The problem is, I don’t believe most of them…

After all, it’s easy for a CEO to say they’re using AI.

Google Maps and Apple Maps use AI to find you the fastest route to the store. Microsoft Outlook and Word use AI to finish your sentences. And banks use AI to handle online payments.

So even if a company is only using programs with built-in AI, they can claim to have an AI strategy. But that doesn’t necessarily mean that artificial intelligence is having a meaningful impact on efficiency.

So, why do they do it?

It’s because companies are being rewarded just for saying they’re adopting AI.

Accenture found that just mentioning AI on an earnings call increased the chance that its share price would grow by 40%.

That’s why I’m cautious about trusting any CEO that says their company is adopting AI without proof. We need to understand if AI is having a meaningful impact on the business, or if it’s just for show.

But it’s worth digging for the companies that are using AI to outcompete their peers. That’s because these companies have a huge advantage to grow sales and cut costs.

That means better returns for investors.

Let me explain.

Find the 7%

Accenture found that only 7% of companies were actually using AI to make more money.

But for those that were, the results were impressive.

These 7% were able to grow their revenue 50% more than their peers, on average.

But it doesn’t stop at making more money. Firms are also coming up with creative ways to save money.

A major solar panel installer uses AI on satellite images to automate planning. That shaves off about 25% of its installation costs. So it can pass some of that savings onto its customers and boost its margins.

Procter & Gamble (P&G) is using AI to cut its time and costs to develop new products. P&G can ask its in-house AI to create a new soap formula that will save costs without sacrificing its cleaning factor.

AI can offer potential solutions that have a good chance of working. That cuts out lengthy experimentation.

The CEO of IBM stated in a recent interview with Bloomberg that he foresees AI replacing 30% of office jobs over the next five years.

We estimate that to be about $780 million in yearly savings.

That would boost IBM’s 2022 net income of $1.6 billion by 48% to $2.4 billion.

That’s why I spend so much time listening to earnings calls, reading through financial reports, and doing boots-on-the-ground research.

The 7% of companies that are using AI to build a better business are going to outcompete the 93% that aren’t.

This will be a big focus for us going forward. Most investors are focused on the “obvious” AI investments. Stocks like NVDA and TSLA have soared this year. But it’s the lesser-known companies that are adopting AI that interest me.

That could be stodgy insurance providers, companies using AI to optimize logistics, or financial firms using the technology to drive efficiencies. These companies are mostly overlooked given the incredible excitement around the “hot” names.

This opportunity won’t last forever. These first movers have a head start. But over the next year, the results will be obvious in their financials from higher sales and lower costs.

If you own the 7% that are actually using AI, you’ll see outsized returns this year. But if you’re left holding the 93% that only talk about AI, you’ll be left with the laggards.

That’s why every day I’m sharing my insights on the most important trends within AI adoption.

Regards,

Colin Tedards
Editor, The Bleeding Edge