The rise of AI marks a transformative technological, economic, and societal inflection point — one with extreme implications for how we live and invest. So, how can investors take advantage of the trend? Jordi Visser, CIO and Chairman of Weiss Multi-Strategy Advisers, spoke to Beth Kindig on the Real Vision podcast on March 20th, to dive deep into AI’s potential for explosive economic growth, how to find winners in this theme, sectors that benefit from AI, the potential for crypto to decentralize AI, and more.

Watch the full interview on Real Vision here: Real Vision Video: AI Opportunity (youtube.com)

AI’s Impact Much Larger Than Mobile

The multi-trillion dollar impact to global GDP is the reason AI will shape up to be such a transformative and explosive trend – much like smartphones, which revolutionized countless facets of our lives, added trillions to the global economy, and created multiple trillion-dollar companies and billion dollar industries.

AI is shaping up to be multiple times larger than mobile – to the tune of 3x to 5x larger over the course of the next decade. Beth explains to Jordi that for AI’s impact on GDP, she has “seen $15 trillion, but McKinsey and others are now raising it to a $25 trillion impact on GDP. You can assume mobile is $3 to $4 trillion, maybe $4 to $5 [trillion], depending on how you chop up smartphones, applications, app stores, things like that. Let’s just give it the highest estimate of $5 trillion – [for AI], we’re looking at 3x minimum, 5x right now and these estimates keep getting raised […].”

Source: I/O Fund

This profound economic growth opportunity from AI is “something we’ve never seen before.” It stems from AI’s product-market fit -- solving clear problems, driving down costs for enterprises and boosting worker productivity -- and when you “match it with the right product, what you have is this hockey stick explosive growth.”

A Cautionary Tale of Consolidation

Even with such an explosive growth forecast for AI, it may still face a similar hype cycle trajectory as many other facets of tech do.

Just as with other innovative technologies, for AI, it’s likely that we will “go through a lot of innovation that is absolutely necessary… but then over time, the hype phase on the user side [fades] and those businesses don’t last.” This has happened in all facets of tech, from mobile to gaming to one of the most notable for tech investors, the dot-com bubble.

Beth cautions that you can “expect something similar to happen with AI as what we’ve seen in mobile, [and] maybe even at a higher rate.” For context, “a wave of innovation such as mobile will often put on the market 2 million apps, but in the long run, fast forward 10 years, most people use about 10 [apps].”

According to Crunchbase data, there are nearly 10,000 AI startups, while a more specific look in generative AI shows nearly 800 startups. Of that 800, 67% are still early stage, while only 2% are late stage. This comes despite a 5x surge in generative AI investments to almost $22 billion in 2023, with funding concentrated in OpenAI, Anthropic, and Inflection AI.

This sort of proliferation of companies creating different AI apps and use cases is definitely a positive outcome, but it’s extremely unlikely that all 10,000 companies participating in the AI economy survive, with consolidation occurring via acquisitions to even bankruptcies for the smaller bootstrapped startups.

Source: CB Insights

There will ultimately be winners in AI, and there’s one critical piece that sets these companies apart: data.

Data Will Create the Winners

For AI, data will separate the winners from the rest of the pack, due to the high costs of training AI models and the need for high-quality data sets to train said models.

Google, Meta, Amazon, and Microsoft have all invested tens of billions into AI development for years, and can quickly and effortlessly integrate AI into their established business models.  For example, Beth explored in June 2023 how AI could drive $100B in revenue for Microsoft by 2027, from OpenAI’s APIs running on Azure, to AI integrations and partnerships via Bing, and the rollout of Copilot, among other drivers.

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What sets Big Tech, and these four companies apart, is that they have huge proprietary data sets that they can use to train AI models for various different purposes. Beth points out that “now we have an issue where, if you are a startup or small company, do you even have the data set to train these models? A lot of people have followed Tesla for a long time, what are the chances that Tesla would ever give away the data set that their fleet has created and generated over the last however many years. They’re going to protect that with everything they have, not only because of the costs that it required to create that data set, but because it’s really their secret sauce.”

Small companies not only will struggle to build out AI infrastructure due to the substantial costs with building out physical data center infrastructure and acquiring GPUs, but will also struggle with developing and fine-tuning high-quality AI models due to the challenges and costs associated with having a large enough proprietary data set. In this sense, large proprietary data sets create a ‘winner takes all’ or ‘winner takes most’ market, led currently by the Magnificent 7. Open-source movements could change this but how/when is speculative at this time.

Show Love to the Semiconductors

Jordi asked Beth what sectors she likes in AI, and her response was: “get comfortable with semiconductors.” She has done exactly that -- of the I/O Fund’s more than 45% allocation to AI stocks in 2023, 40% of that was semiconductors, helping the fund power to a 57% annual return last year.

Semiconductors are powering Big Tech’s AI aspirations, and Beth explained that these companies are “50% of the AI market; that’s up from 20% or 30% of the mobile market, and they will be, for us, the right way to participate in AI in the near term.” She added that one of the main takeaways that she hopes for investors to get from the interview is that “these semiconductors will become the AI software players.”

This is evident with Nvidia – not only is it monetizing hardware sales via its Enterprise software suite for $4,500 per GPU per year, but also some of its biggest announcements at GTC were software, with its Omniverse Cloud APIs and Omniverse integration with Apple’s Vision Pro headset.

Preparing for the Next Phase of AI

While semiconductors have dominated in hardware – the data center – as the first explosive phase of AI, will expand beyond them to the edge. The forthcoming upgrade cycles for smartphones and PCs will see Edge AI rise as the second wave of AI. Beth explained that “there’s only so much AI can do in the data center. Inference has to run close to the user.”

We’re already seeing signs of this unfolding – Samsung is partnering with Baidu to use the Chinese tech giant’s AI chatbot Ernie in its S24 smartphones, while Apple is in discussions to also use Ernie in its Chinese devices. AMD, Apple, Qualcomm and Intel are all releasing new PC chips to boost AI computing power two to four-fold from prior generations in an effort to facilitate AI inference on these local devices.

The I/O Fund is currently preparing to capitalize on edge AI as it will be an important trend that has yet to emerge. We have been sharing in-depth research on the next stocks poised to capitalize on edge AI with our premium members and we discuss potential entries and exits every week in a one-hour webinar on Thursdays. We also offer trade alerts plus an automated hedging signal. The I/O Fund team is one of the only audited portfolios available to individual investors. Learn more here.

AI Is Not a Trend to Ignore

While many are quick to say that AI is merely just a ‘buzzword’, those who are in the know were able to get in front of 2023’s big move. AI is not a trend to miss or ignore, and it offers investors a rare opportunity to get onboard in the early stages of one of the largest economic and transformational trends in tech.

The $3 trillion to $5 trillion mobile economy sprouted the FAANGs of today, and if you could’ve invested in the FAANGs 10 to 15 years ago, you would have, given that multi-trillion dollar potential. Today’s estimates put AI at 3x to 5x larger than mobile in terms of overall impact to GDP, and  we’re only in the first of multiple powerful AI waves. And as a leading portfolio in AI, the I/O Fund is preparing to capitalize on this once-in-a-lifetime trend.

Watch the full 1-hour interview for the in-depth view on AI’s potential, what sectors will benefit and which will be a “hot potato” to avoid, crypto and AI, and more.

If you own AI stocks, or are looking to own AI stocks, we encourage you to attend our weekly premium webinars, held every Thursday at 4:30 pm EST. Next week, we will discuss a handful of AI plays for 2024 – what our targets are, where we plan to buy as well as take gains. Learn more about I/O Fund’s premium services here.

Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.

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