“I get hysterical, hysteria
Oh, can you feel it?
Do you believe it?
It’s such a magical mysteria
When you get that feelin’
Better start believin’
‘Cause it’s a miracle
Oh, say you will,
Hysteria, when you’re near'”
– Hysteria, Def Leppard
AI hysteria is here and it was responsible for adding $184B in market cap for Nvidia. In one day.
On one hand, the Fed is trying to fight inflation by driving interest rates higher and jawboning the market into submission.
On the other hand, AI stocks are exploding.
Let’s dive into this edition that includes exclusive content: a chart towards the end about enterprise AI deployment and adoption.
In today’s edition
- Is AI The New Dot Com?
- NVIDIA’s Surge: What Happens Next
- What’s Happening In the Trenches at Enterprise Companies
1. Is AI the New Dot Com?
Yep, the B word (bubble) has entered the AI lexicon.
The AI hype machine and recent stock surges are driving people to start talking about this trend being the next dot com bubble.
If indeed AI is the new dot com, then there are no large swathes of AI IPOs to support that claim. There are no new IPOs in this market: AI or otherwise.
With 100M+ early adopters of ChatGPT and Bard, we might be in a new territory where AI usage and applications justify valuations.
Before declaring AI is the new dot com, I think folks should pause and think hard about what is the question. Is the question about stock surge? valuation and PE ratios? Or market demand?
What is the question?
IMHO, there is a specific reason for these stocks to skyrocket. Thanks to ChatGPT’s popularity, and Microsoft + Google’s marketing hype machine; AI is attracting end users, professionals, and investors to look at it as the next big thing.
It is likely is the next big thing.
But the key question is this: If investors are excited about AI, what are the stocks to invest in AI?
Very few.
There aren’t that many public companies that are trueblue AI players. You can probably count them on the fingers of one hand: Google, Microsoft, Nvidia, and maybe Tesla… and then you have a string of “.ai” players that claim to have extraordinary AI technology but not enough revenue or market cap to prove it.
So there are only a few stocks to buy when it comes to AI. Investors will keep piling into these stocks until they find additional avenues to invest in AI. Or until the hype dies down.
Here’s the YTD (Year to Date) performance of these AI stocks vs S&P 500 which has gone up about 10% YTD (as of this writing).
2. NVIDIA’s Massive Surge: What Happens Next?
Why is NVIDIA surging?
Training AI models demand chips that have large parallel processing capability and high amounts of memory, and Nvidia happens to be the only company that makes them.
Nvidia has been steadily growing its AI chips business over the past several years, but the explosion of interest and investment in the space over the past six months has turbocharged its sales.
A set of eight of the most advanced chips can cost about $300,000. Companies buy thousands of them. Twitter owner Elon Musk recently bought about 10,000 GPUs as he plans to start a new AI company.
In other words, dear friend, Nvidia is selling pick axes to gold miners.
Best effing business model ever.
Nvidia stock surged…but became cheaper?
Nvidia saw an impressive 25% surge in its shares this week, yet paradoxically, the stock became cheaper.
The core reason for that is embedded in its earnings announcement: the company expects second-quarter revenue to come in at about $11 billion, plus or minus 2%. Wall Street was anticipating $7.2 billion.
Before earnings, its price-to-earnings ratio was 66.1 based on full-year 2024 estimates, and 49.1 based on 2025 projections.
After guiding higher earnings, the forward P/E for this year is 52.9 and just 39.4for next year.
What’s Next?
Nvidia is enjoying a TINA moment. (TINA = There Is No Alternative). Unless the AI demand goes down or a competing architecture / chipmaker emerges; Nvidia will continue to be a TINA play. The stock price might see variations, but demand for Nvidia chips will continue to increase until TINA factor holds.
3. What’s Happening in the Trenches at Enterprise Companies
Companies across the board are adopting AI. Mostly to drive efficiency, and create new capabilities for internal and external stakeholders.
Based on our work with multiple clients, we are observing four clear categories based on enterprise AI deployment and adoption:
AI Enthusiasts are trailblazing individuals, harnessing consumer AI applications like ChatGPT and Bard for individual use. With over 100 million users, this low-cost entry point is a popular first step.
AI Professionals elevate AI usage by integrating AI capabilities into team-based enterprise applications. Tools like Office 365 Copilot and Google Duet are favorites, offering moderate costs and team-wide benefits.
AI Transformers take it a notch higher, crafting specialized LLMs for industry-specific applications. by leveraging tools like Langchain and vector databases like Pinecone. For example, Bloomberg, has developed a financial LLM to revolutionize financial services delivery. The cost? Higher, but so is the impact.
Finally, AI Tech Leaders like Anthropic, OpenAI, and Google are the pioneers, building proprietary LLMs like Claude and PaLM 2. With the highest costs and the broadest deployment footprint, they’re shaping the future of AI. There’s also a set of open source LLMs vying for this space.
Wrapping up: Am I being too subtle?
As we conclude this newsletter, we pay tribute to Sam Zell, a real estate magnate who recently passed away. His book, “Am I Being Too Subtle?” encapsulates his bold approach to business and life. “If everyone is going left, look right,” Zell often said.
To him, conventional wisdom was nothing but a reference point. Year after year, deal after deal, he shut out the noise of the crowd, gathers as much information as possible, then trusted his own instincts.
Often contrarian, blunt, and irreverent, and always curious and hardworking; interestingly he is also credited for bringing jeans-wearing culture to the workplace.
His business lessons and legacy will continue to inspire.
Book: Am I Being Too Subtle?
Podcast: Sam Zell Episode on Founders, by David Senra
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Published by
Managing Partner at ↗Spearhead | Strategy + Transformation with AI and Digital | Best-selling Author | Loves Dad Jokes
