AI: Who's getting rich? đź’°

Breaking down the picks and shovels of the AI space

Author

Ahmed Saeed
May 05, 2024

In partnership with

***Disclaimer***

We aren’t offering investment advice in this article. Just musings on the market.

There’s a generation of people who saw 2 tech booms over the last 25 years when they were in school.

Most of us didn’t get rich building Netscape or Uber, but we’re trying to get rich by throwing our disposable income where it’ll outperform the S&P.

During the gold rush, it was plausible you’d find gold, but it was guaranteed that you’d have to buy a pick or a shovel

So, if AI is the new gold, what are the picks and shovels?

Let’s get into it.

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TL;DR INDEX CARD

1. AI is the single biggest needle mover in the tech industry right now, but with limited options on a pure-play AI company, best bet is to evaluate the infrastructure surrounding what powers AI.

2. Companies like Nvidia, Amazon (AWS), Microsoft (Azure + OpenAI), are indirect avenues into taking advantage of AI for retail investors

3. Feels different than the opening of the last tech boom, as you have established players controlling a lot of the pieces already

AI: The Value Chain

This is

  1. Apps: Stuff like Github Co-Pilot or OpenAI’s Chat GPT

  2. Those apps need a brain, they’re called models.

  3. Those models need to be housed somewhere (the cloud)

  4. The cloud runs on chips’ (hardware) compute power

Source: The Economist

Who are the winners in this stack?

Cloud and hardware companies are having a ball right now.

  1. It’s probably because we already know the companies operating in these spaces. And they’re already public.

  2. Microsoft and Amazon are household names that have huge cloud divisions and are already servicing AI clients,

  3. Nvidia and AMD have long track records in developing hardware/chips.

The Economist did some research around which companies are benefiting from the AI boom. They took a look at market capitalization of each space within the stack:

Source: The Economist

How might this tech boom be different than others?

We’re not really sure, to be honest.

So we’re going to lay out some top-line observations:

  1. In Web 2.0 (post-iPhone), you had a bunch of people trying to solve a bunch of different problems and bring those solutions to a platform(the smartphone).

  2. Companies like Uber, Spotify, Instagram rose up and they’re now worth billions.

  3. Now, it feels like a few huge companies control very important parts of the value chain like Amazon (Cloud), Nvidia (hardware), Microsoft (which has a huge stake in OpenAI)

     

So now, it feels like whatever companies rise to the top will be because of their proximity to/ getting along with those tech giants.

Granted, in the early 2000’s, the platform that apps were trying to be successful on was Apple’s/Android’s (bought by Google). Google and Facebook were already huge companies, so we understand the hazy nature of our logic.

None of this is investment advice.

What AI Made This Week

Sick Fits by Ahmed

Youtube Video of the week

John Mearsheimer is a top 1% thinker when it comes to geo-political issues.

This interview was a great entry into a rabbit hole of geo-politics videos.

Have a great week!

Ahmed and Peter

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