By Graham Summers, MBA
We’re picking up where we left off our A Deep Dive Into What AI Means For Corporate America investment series. If you missed the first two parts from this series, you can access them here and here.
By brief way of review:
- Artificial Intelligence (AI) is the dominant theme in the investing world today.
- Currently AI is capable of accessing vast swathes of available information and integrating it in such a way that AI appears to be creating something from scratch.
- Current AI models are being deployed in practically every sector of the economy from entertainment to marketing, operations and more.
- While the areas of the economy that AI is impacting are different, the implications are all the same:
- Improving productivity (getting more results for less effort).
- Cutting costs (salaries, benefits, office space, etc.).
This is why AI is so exciting for the economy and investors. In a best-case scenario, AI will lead to a massive increase in profitability as revenues grow and costs decrease. And that is what has triggered a kind of mania for AI-related stocks.
The flipside of this is that AI is currently a kind of Wild West in which “anything goes.” There are no legal, legislative, or societal frameworks for this technology. As a result, advances are being made with few if any ethical considerations.
In this sense, AI is following a pattern we’ve seen with other technological revolutions in the past. That pattern consists of two phases is:
- The initial breakthrough phase, which occurs before social/legal frameworks are in place.
- The “normalization” phase during which social/legal frameworks are implemented, giving the technology a societal and financial legitimacy.
If you need a real-world example of this, think of the electronic music file or MP3 revolution.
The first phase was Napster in 1999, which featured the sharing of music in what was later deemed as illegal activity (the legal framework was not yet ready for the technology). During this initial phase Napster exploded in popularity particularly among young people. At its peak Napster had tens of millions of users. Then came the lawsuits, Napster went bankrupt, and social/ legal frameworks were introduced for this new technology. During this time Apple introduced iTunes: a version of MP3 technology in which MP3s could be bought and sold in a legally acceptable form.
Napster is still around. Its marketing promotes the fact it is “100% legal.” And it has about five million users. By way of contrast, at its peak, iTunes had 500+ million users and accounted for 63% of all digital music sales. It is now in the process of being converted over to Apple Music, a new service that also offers music streaming and other services in order to compete with Spotify which is the new market leader. So once again, the technology has changed and requires adaption.
AI as it stands today, is in its “Napster” phase. As investors we can profit from this by riding key players in the space, but we need to do so with our eyes open to risks, in particular the risk that at some point, the threat of a regulatory framework for AI will appear. And when it does, much of the “froth” in AI stocks will disappear as hot money/ momentum investors leave the space out of fear.
This doesn’t mean that AI will be “dead” at that time. Indeed, the BIG money will be made as market leaders emerge from the ashes of that collapse.
We’ll delve deeper into this in tomorrow’s article…
In the meantime, if you’re interested in profiting from this technological revolution, we are currently putting the finishing touches on a special investment reporting that outlines some of the larger implications for AI as well as several of the most likely market leaders.
To receive this special report when it’s published later this week, all you need to do is sign up for our FREE daily investment commentary Gains Pains & Capital.
To do so, go to: https://gainspainscapital.com/subscribe/
Good Investing!
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
