The Hype, Hope, and Reality of AI

There's no question that AI has been and will continue to impact much of what we do and how we do it... It's still early innings, as they say... Yet Wall Street being Wall Street, there's a tendency to lump everything together – creating a fear of missing out – and then overdo it. Like […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The Hype, Hope, and Reality of AI By Herb Greenberg --------------------------------------------------------------- ['The Prophet' issues a MAJOR warning...]( He called the exact day that Bitcoin peaked... He predicted the exact hour marijuana stocks would begin their collapse... He even predicted the exact day the market would bottom after the COVID collapse... He's nailed so many major market moves with such accuracy that CNBC called him "The Prophet"... Now, he's issuing the boldest warning of his career... right down to the hour. He's predicting an EXTREMELY rare event is set to occur... one that hasn't happened for 15 years. Millions of Americans will be taken by surprise when this happens. But you have an opportunity to prepare yourself NOW. [Click here to reveal his message in full](. --------------------------------------------------------------- There's no question that AI has been and will continue to impact much of what we do and how we do it... It's still early innings, as they say... Yet Wall Street being Wall Street, there's a tendency to lump everything together – creating a fear of missing out – and then overdo it. Like AI, as if it's something new. It's not. "Old AI," as you might call it, has been around and evolving for decades. As one friend who is a longtime observer and investor of the tech investing scene puts it... There is the AI you don't see, but that has been in production for years... the "IT infrastructure stuff," for lack of a better term. That has been proceeding at a standard evolutionary tech pace. Largely without fanfare, old AI has been organically integrated into all aspects of whatever industry you can think of. Think of it as a key component automation. What is new is generative AI – chatbots like ChatGPT from OpenAI and Bard from Alphabet's (GOOGL) Google... As my tech-savvy friend explained... [Generative AI] showed up out of nowhere when the public beta started... and has been evolving and organically integrated into various aspects of our lives for many years. This gets us to where we are now: in his words, "the mania phase." You know you're there because "suddenly everything is AI all of a sudden," seemingly all the time... much of it what he calls "fake AI." As he goes on to observe... I have investments in three startups. Three years ago they were all business or software companies. Now they are all "AI." Same for every public company that reports and says "AI" 50 times. And Goldman Sachs calling Walgreens an AI winner! That's always the sign of a frenzy... This frenzy has one other element, which makes it different among stock market frenzies: Among public companies, the number of true AI companies is tiny... currently a highly concentrated group, which is led by Alphabet, Nvidia (NVDA), and Microsoft (MSFT). When chipmaker ARM goes public next week, it will be part of that group, too. This past February, in fact, I recommended Microsoft in my Empire Real Wealth newsletter, saying that AI would drive what I called "the third coming of Microsoft." (Subscribers who followed my advice to buy MSFT shares are up 32% so far.) Beyond those soon to be four, and arguably just a few others – including Amazon (AMZN), Meta Platforms (META), and Apple (AAPL) – there's a wide gap because most other companies are their customers. And for them, as another friend explains, it's "a cost out" technology, which helps companies cut costs. (Translation: people.) Just because a company uses the technology doesn't make it an AI company. In fact, in Empire Real Wealth, I recently identified two that I refer to as "stealth" AI companies. That's because they're using proprietary AI to vastly improve their products, such as medical imaging... or they have something, like data, which the chatbots need to get themselves to the next level. (If you aren't already an Empire Real Wealth subscriber, you can find out how to gain access to these recommendations [right here]( --------------------------------------------------------------- Recommended Link: [This Secret 'Bitcoin Killer' Just Altered Every Dollar You Own]( A secret "Bitcoin Killer" was just launched that could make every cryptocurrency obsolete. It’s not a crypto, or an NFT or anything like that. But it impacts every dollar you own... because it’s backed by the full weight of the federal government. [Click here now for all the details!]( --------------------------------------------------------------- Even then – it's one thing to have the technology, it's another to build a business around it... Or as the Wall Street Journal recently pointed out, even venture capitalists – eager to invest in generative AI – are challenged to connect the two. Generative AI is at such an early stage that Sunil Dhaliwal, a general partner at Amplify Partners, which is an active investor in AI startups, told the Journal... We've moved from a moment of "How big can this be?" to "How do we make it work?" The story also quoted Frank Slootman, of the data storage company Snowflake (SNOW), as saying... We cannot sort of unleash AI and have no business model to pay for it. The Journal went on to quote John Luttig, an investor at Founders Fund – a longtime investor in AI – as saying that "there is a ton of VC propaganda" about the investment potential in AI. As he added... It's an unequivocal optimism without asking any of the hard questions on product, user interface, distribution, or end markets. Put another way, generative AI – with all its bells, whistles, potentials, and pitfalls – is a technology still in search of a business... Lots of companies are testing it, but it's too early to say how many will implement it... and if they do, to what extent. For example, earlier this summer I received an e-mail from Mercedes asking if I wanted to join its "beta" testing program of integrating ChatGPT into infotainment systems. I jumped at the chance... but have heard nothing since then. When I try to use it, the current system seems to respond the way it always has – routing me to some place 3,000 miles away. More broadly, you can see all of this in the numbers, with visits to ChatGPT and similar services starting to slide. That's confirmed by Google Trends, which tracks search terms... Now that seemingly everybody has played with it, almost as if it's a toy, they're getting back to their old habits... except where generative AI makes a difference. And for most of us, it has happened in less than a year... For example, I like to ask questions (an occupational hazard of spending decades as a journalist!) so now I use Google's Bard search tool – which lets me seek an answer – as part of my regular search process. If nothing else, it's a jump start to deeper digging. (Accuracy remains an issue.) I've also used ChatGPT for brainstorming purposes, and I use generative AI (mostly the free version of DALL-E via Microsoft's Bing) to illustrate various essays I write on Substack and LinkedIn. And that brings me to one last point... It's almost as if what generative AI spits out has risen to a level of mediocrity, where everything is starting to look and sound alike... Or as Paul Kedrosky and Eric Norlin of SK Ventures mention in a recent report, we've hit that point where, in their words, "AI isn't good enough." It's at the point where they believe "we are at the tail end of the first wave of large language model-based AI," which will likely end "in the next year or two with the kinds of limits people are running up against." As they went on to say... It ends partly because of constraints inherent in the current approach, but also because of technological and cost limits related to training models, whether wide or narrow. This wave has been terrific for a few companies, especially Nvidia, but it will be thought of in the future as mostly about piping the AI house, at most. The key component of this current wave is that it is characterized by scarcity – training data, models, chips, and AI engineers – and the accompanying high costs that scarcity brings. Bottom line of all this... As with all technological revolutions and evolutions, this one has combined hype, hope, and reality. There's a fine line between each – with investors often buying on the hype, convincing themselves they're right with hope, and then being hit by reality. For AI, the reality is that the promise of the technology is very real... but for investors, so is the ongoing risk. There's an important distinction between the two that often gets lost in all the noise. What nobody knows this time around is will, say, Nvidia be the AI version of Cisco – the poster child of the ultimate in excess valuations during the dot-com bubble? As the chart below shows, it has taken Cisco more than 20 years to get within a stone's throw of its dot-com bubble highs... Or will Nvidia instead go on to be the one we wished we had all bought... even here? (I'll note that my colleague Whitney Tilson recommended Empire Stock Investor readers buy NVDA shares back in February 2020... He also recommended that they take half their money off the table in August that year after the stock doubled, and subscribers who have followed his advice are currently sitting on a gain of 386% on the combined position.) There's something else... During the dot-com bubble, I had something I called the Greenberg Garbage Index™. It was right up there with my Hostile React-O-Meter™, which I would roll out whenever I dared poke holes in whatever the equivalent of a meme stock was back then. (I still rev it up every now and then.) Maybe it's time to dust off the Garbage Index, too... If this upcoming ARM initial public offering ("IPO") is everything it's cracked up to be, it very well may open the IPO floodgates for questionable companies... giving the Greenberg Garbage Index a new lease on life. Regards, Herb Greenberg September 6, 2023 [Get a 30-day, 100% money-back trial to Empire Real Wealth by clicking here.]( --------------------------------------------------------------- If someone forwarded you this e-mail and you would like to be added to the Empire Financial Daily e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2023 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 1125 N. Charles Street, Baltimore, Maryland 21201 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](