We recently talked about how investing in artificial intelligence stocks is total rubbish because there just aren’t any. We looked at all the “artificial intelligence stocks” touted by your typical retail investing media outlets and found that of the 9 “AI stocks” recommended by the pundits, just the following 3 would be considered proper plays on artificial intelligence as a product:
The AI hype train is now picking up steam with recent comments by Mark Cuban about how we’ll see “the world’s first trillionaire” when someone masters the killer application using AI. Now the biggest problem with that statement is that it assumes that there will be only a select number of winners, right? The only way you’re going to amass a trillion dollars in wealth is because someone paid you that money because you sold them a product that helped them create wealth. This would imply that you were one of a small number of providers selling one or more of the following:
- AI hardware
- AI software
- AI as a service
Let’s face it. The only way you’re getting to be an AI trillionaire is if what you provide is unique and not sold by everyone else out there. This just isn’t the case so far. We’ve talked before about AI hardware and while companies like Nvidia have made great strides in cornering this market, it’s still a moving target with quite a few startups deepness competing offerings. Google’s recent announcement of a new AI chip specifically configured for Tensorflow hints that maybe AI software providers will all move towards developing their own hardware. Right now, AI software is pretty much free for anyone to use and we gave you X providers of AI software who let you download their software for free. Free isn’t the best way to reach a trillion dollars. With that said, here are three people who could be the next AI trillionaire.
We don’t have a dominant provider of AI software or AI hardware emerging just yet, but Google’s Deepmind is said to be one of the best. A company like Google that can now provide both the AI hardware and AI software in a single package can then offer AI as a service (or AAAS as we’ve decided to name it). Of course in order to make AI effective, you need to feed it lots of delicious big data. Given that Google claims that they exist solely “to organize the world’s information and make it universally accessible and useful”, it seems like they have access to the data they need to do that.
Could Google be on the path to creating the world’s first AI trillionaire that Marc Cuban was talking about? If so, Sergey Brin holds about 19.4 million shares with a value of about $16 billion. We would need to see Google’s share price appreciate about 62X to around $51,500 a share for him to become a trillionaire. It’s hard to imagine that happening, but it’s certainly possible.
Then let’s pretend that it’s any startup out there today. For the purposes of having a concrete example, let’s choose Bryan Johnson of Kernel. Regular readers will know we have somewhat of a bromance going with this under-the-radar hustler who creates tremendous wealth and then decides to invest it in some of the most exciting companies today with his venture capital fund “OS Fund”. Mr. Johnson has put $100 million behind a startup that uses AI to allow us to read/write the human brain onto chips which means he owns all the equity presently. He says he’s 80% of the way to being able to “read the brain” which is incredible.
Let’s say that Kernel is “the next Microsoft” and we’re all able to achieve immortality by uploading our brains into cyborg creations. Let’s say that in the best case, Mr. Johnson manages to secure 25% of Kernel shares as he scales the isht out of his company to grow at the pace needed to hit these massive numbers. Kernel would need to hit a valuation of $4 trillion dollars in order for that founder to be a trillionaire (about 5X the size of Apple today). That’s a lot of growth people. The point is that whoever is going to be the founder of an AI startup and be the next trillionaire can’t do it by giving away equity for funding. It’s a catch 22 because you need funding to scale.
Another more believable alternative we floated in our last article was an “everybody wins scenario” where every single industry leader manages to use AI to create efficiencies unlike the world has ever seen and that we are on the cusp of the biggest bull market that humankind could ever imagine. In this scenario, every one of those 1,500 AI startups that exists today manages to be acquired by some leader in the areas seen below:
- AI for Accounting
- AI for Human Resources
- AI for Robotics
- AI for Marketing
Think about how impactful it would be if every single industry leader could cut their labor costs by 30%. Let’s take insurance as an example. Warren Buffet has always loved investing in insurance companies. The same man who finds technology daunting (IBM being the exception), believes in businesses he can understand like insurance. Think about what an insurance company needs to do. They need to anticipate the likelihood of a payout in the future. They need to identify if a claim is fraudulent so they don’t have to pay it. In short, they need to employ people who can predict the future. Historically, that job has gone to actuaries. The definition of an actuary says it all:
Actuaries use their skills to help measure the probability and risk of future events.
If your job is that of an actuary then you need to start job hunting now (an easy transition would be into the field of data science). That’s one example of how a “boring” and mundane industry like insurance could end up being the biggest winner in the long run. All the other “boring” industries out there may also realize incredible efficiencies and create tremendous wealth. With a wealth of around $70 billion, he would only need to increase his wealth 14X to hit a trillion dollars. Our money is on boring old Buffet.
While we write about technology investing on a daily basis, we don’t put our money where our mouth is. Few people will talk your ear off more than we will about how incredible the future of technology is but we’re not invested in many of the stocks we talk about. Why? That’s because we believe that the biggest companies today are the most likely to be keeping tabs on the latest technologies. Sure, you may get the jump on a big insurance company like Chubb (NYSE:CB) with your deep learning algorithm that can do better than human actuaries that are used today but you’re likely to get eventually bought by them if that’s the case. Maybe the most conservative play on investing in artificial intelligence is actually just making monthly investments into a well diversified robo advisor like Betterment.
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