Is the AI hype dying down?
“AI’s $600 billion question.”
That’s the title of a new memo from top venture capital firm Sequoia.
It sounds the alarm on the rapidly growing gap between how much companies are spending on AI… and what they’re earning in return.
Amazon (AMZN)… Google (GOOG)… Microsoft (MSFT)… and Facebook (META) will spend roughly $170 billion building AI data centers this year. Yet the top-earning AI startup, ChatGPT creator OpenAI, will only make a measly $3.4 billion this year!
Is the AI hype dying down? Did the AI bubble just burst?
Two thoughts…
#1: New technologies (like artificial intelligence) follow the predictable I.P.A. pattern.
Infrastructure comes first, followed by Platforms, then Apps.
The iPhone launched in 2007… the App Store (platform) in ‘08… and then apps like Uber and Airbnb a few years later.
It’s easy to forget ChatGPT is only 18 months old. Remember, we’re in the infrastructure phase of the AI rollout.
Turning breakthroughs into moneymaking products takes time. We’re on the cutting edge, but most people still haven’t clicked ChatGPT.
#2: Will the real AI please stand up?
Alaska Air Group (ALK) saved 500,000,000 gallons of fuel last year thanks to its new AI navigation system, which acts like “Google Maps in the air.”
Consulting giant Accenture raked in over $1 billion in AI bookings over the past six months.
But nobody counts these as “AI revenue.”
The big story of the next year will be “old-world” companies making money from AI. This technology will touch everything.
I get “Barron’s Facebook story” vibes reading about how AI companies will struggle to make money. Yes, it’s often unclear at first how to monetize a new, widely adopted technology.
Social media went through the same uncertainty. Barron’s argued that Facebook stock was a “risky bet” in the fall of 2012.
Here’s how the stock has performed since then — posting a 2,000% gain:
Remember, we’re early in AI. Don’t miss the boat because of problems that will be solved in a quarter to two.
Bottom line: The AI hype might have taken a breather, but the AI revolution is barely beginning. AI stocks are a Buy!
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I publish fresh research on cryptocurrencies and stocks every M/W/F.
— Stephen McBride, Chief Analyst at RiskHedge
