The Biggest Investment Trend of Our Lifetimes – Part I

Colin’s note: Carrying on with our “best of The Bleeding Edge” series, I’ll be spotlighting some premium content I unlocked for you and your fellow readers earlier this summer…

We looked at how when I’m evaluating how a company will benefit from AI, I split them into one of two camps: innovator or adopter… And I revealed how you can profit from both.

You just need to know where to look…

I’m excited to announce that I’ll be “unlocking” some premium content and sharing it with readers of The Bleeding Edge.

Tomorrow, I’ll share three of my favorite stocks leveraged to the adoption of artificial intelligence. But before we get there, we need a bit of context for these companies and how they fit into the larger AI trend.

The world started taking notice of AI on November 30, 2022. That was the date that OpenAI’s ChatGPT was opened to the public. By now, readers likely need no reminder of what this generative AI is capable of.

And while artificial intelligence captured investors’ imagination in just the past few months, the reality is that this technology has been “in the works” for decades.

One of the earliest forms of AI was a program built in 1952 that learned how to play checkers. Since then, it’s been used in speech transcription software, to guide Mars rovers, and to assist highway driving.

And whether we know it or not, we have likely been using artificial intelligence for years. Personal digital assistants − like Apple’s Siri − are an early form of this technology.

When we ask Siri a question, the program uses a technology known as “natural language processing (NLP)” to “understand” what we are saying and provide an appropriate response.

But those were all one-off use cases. The AI had to be built to solve a specific problem. And, while digital assistants are handy, their utility drops off very quickly. The developments we’re seeing in AI today are very different. For the first time, AI programs can be trained on datasets for a variety of roles.

As mentioned, the most popular AI right now is OpenAI’s ChatGPT. Even the free version can compose songs, answer detailed questions, and write code to build websites and apps.

Specialized versions can be used as customer service agents, to write marketing material, and even provide live analysis on stocks and bonds. This flexibility means that AI is accessible to nearly every business.

We are in a unique period…

In 1999, companies understood the disruptive potential of the internet. They raced to adopt the technology to improve their business. It was a similar story with the “cloud revolution,” which started in earnest around 2007.

The rapid adoption of these technologies changed business and society in unprecedented ways. And it created fortunes for early investors leveraged to the adoption. Artificial intelligence will be no different. It will make business more efficient… and more responsive to their customers.

For instance, 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 a massive incentive for enterprises to use AI.

My research indicates that the opportunity in AI over the next decade will be even bigger than the $414.9 billion cloud computing market.

On June 13, AMD’s CEO Lisa Su forecasted that the AI hardware market alone would grow 50% per year from $30 billion to $150 billion in 2027.

GrandView Research Estimates that AI’s software market will grow at 37% annually until it reaches $1.7 trillion by 2030.

And consulting firm PricewaterhouseCoopers estimates that AI’s total impact will add $15 trillion to the world’s GDP by 2030. That’s 16% of last year’s GDP of $95 trillion.

Now the obvious question: Which investments will benefit from the adoption of this technology?

Innovators and Adopters

When I’m evaluating how a company will benefit from AI, I split them into one of two camps: innovator or adopter. We can get an idea of these two categories by examining a past adoption cycle for cloud computing.

Amazon is the perfect example of an innovator in the cloud computing space. It was the first major player to offer cloud computing. It leaned on its size and strength as an e-commerce company to offer cloud services. And it held greater than 50% market share until 2017.

Netflix is a great example of an adopter. It adopted AWS to cut down time… but management quickly realized that AWS could be used to support its streaming ambitions. Netflix was able to scale from 21 million customers in 2011 to 230 million in 2022 with the help of AWS.

The important thing to note is that both categories − innovators and adopters − were incredible investments over the long term .

Most of the innovators in AI will already be massive multibillion-dollar companies. That’s because it costs tens to hundreds of millions of dollars to build the hardware of programs that offer cutting edge AI capabilities.

The field of adopters is far bigger. These will range from tiny start-ups to fortune 500 companies. What we’re looking for are companies that can use AI to dramatically increase sales or cut costs.

It’s also important to find the companies that are adopting AI first. That will allow them to steal market share from bigger and slower moving competitors… or quickly capture brand new markets.

As for specific recommendations, I’d encourage you to tune in tomorrow when I’ll reveal three of my favorite companies leveraged to the adoption of artificial intelligence.

Regards,

Colin Tedards
Editor, The Bleeding Edge