AI's Winners, Losers and Wannabes: An NVIDIA Valuation, with the AI Boost!

I will start this post with a couple of confessions. The first is that my portfolio has held up well this year, in a market that has been top-heavy and tech-driven, and one big reason is that it contains both NVIDIA and Microsoft, two companies that have benefited from the AI story. The second is that much as I would like to claim credit for foresight and forward thinking, AI was not even a speck in my imagination when I bought these stocks (Microsoft in 2014 and NVIDIA in 2018). I just happened to be in the right place at the right time, a reminder again that being lucky often beats being smart, at least in markets. That said, NVIDIA’s soaring stock price has left me facing that question of whether to cash out, or let my money ride, and thus requires an assessment of how the promise of AI play’s out in its value. Along the way, I will take a look at the promise of AI, as well as the perils for investors, drawing on lessons from the past. The Semiconductor Business The semiconductor business, in its current form, had its growth spurt as a consequence of the PC revolution of the 1980s, as personal computers transitioned from tools and playthings for geeks to everyday work instruments for the rest of us. In the last four decades, computer chips have become part of almost everything we use, from appliances to automobiles, and the companies that manufacture these chips have seen their fortunes rise, and sometimes be put at risk, as technology shifts. 1. From High Growth to Maturity! It was the personal computer business in the 1980s that gave the semiconductor business, as we know it, its boost, and as technology has increasingly entered every aspect of life, the semiconductor business has grown. To map the growth, I started by looking at the aggregated revenues of all global semiconductor companies in the chart below from 1987 to 2023 (through the first quarter): Source: Semiconductor Industry Association From close to nothing at the start of the 1980s, revenues at semiconductor companies surged in the 1980s and 1990s, first boosted by the PC business and then by the dot-com boom. From 2001 to 2020, revenue growth at semiconductor businesses has dropped to single digits, as higher demand for chips in new uses has been offset by loss of pricing power, and declining chip prices. While revenue growth has picked up again in the last three years, the business has matured. 2. Sustained Profitability, with Cycles! The semiconductor business has generally been a profitable one for much of its existence, as can be seen in the aggregate margins of companies in the business below: While gross and operating margins have always been healthy, the pick up in both metrics since 2010 is a testimonial to the higher profitability in some segments of the chip business, even as competition commoditized other segments. As can be seen in the periodic dips in profitability across time, there are cycles of profitability that have continued, even as the business has matured. It is worth noting that these margins are understated, because of the accounting treatment of R&D as an operating expense, instead of as a capital expenditure. The R&D adjusted operating margin at semiconductor companies is higher by about 2-4%, in every time period, with the adjustment to operating taking the form of adding back the R&D expense from the year and subtracting out the amortization of R&D expenses over the prior five years (using straight line amortization). 3. Love-Hate Relationship with Markets! As the semiconductor business has acquired heft, in terms of revenues and profitability, investors have priced those operating results into the market capitalization assigned to these companies. In the graph below, I report the collective enterprise value and market capitalization of global semiconductor companies, stated in US dollar terms: As you can see, the semiconductor companies have enjoyed long periods of glory, interspersed with periods of pain in markets, starting with a decade of surging market capitalizations in the 1990s, followed by a decade in the wilderness, with stagnant market capitalization, between 2000 and 2010, before another decade of growth, with market capitalizations surged six-fold between 2011 and 2020. Note that for the most part, semiconductor companies carry light debt loads, leading to enterprise values that either trail in market capitalization in some years (because cash exceeds debt) or are very close to market capitalization in other years (because net debt is close to zero). As market capitalizations have risen and fallen, the multiple of revenues that semiconductor companies has also fluctuated, reaching a high in the dot-come era, with semiconductor companies trading collectively at more than seven times revenues to a long stretch where they traded at between two and three times revenues, before spiking again between 2019 and 2021. If prices are a reflection of what the market thinks about the future, the pricing of semiconductor companies seems to indicate an acceptance on the part of investors that the business has matured. 4. Shifting Cast of Winners and Losers! As the semiconductor business has matured, it has also changed in terms of both the biggest players in the business, as well as the largest customers for its products . In the table below, we show the evolution of the top ten semiconductor companies, in terms of revenues, from 1990 through 2023, at ten-year intervals: The cast of players has changed over time, with only two companies from the 1990 list (Intel and Texas Instruments) making it to the 2023 list. Over the decades, the Japanese companies on the list have slipped down or disappeared, to be replaced by Korean and Taiwanese firms, with Taiwan Semiconductors being the biggest mover, moving to the top of the list in 2022. After a long stretch at the top, Intel has dropped back down the list and ranked third, in terms of revenues, in 2022. Note that NVIDIA, the subject of this post, was eighth on the list in 2023, and has remained at that ranking from 2010. That may seem at odds with its rising market capitalization but it is indicative of the company's strategy of going after niche markets with high profitability, rather than trying to grow for the sake of growth. The customers for semiconductor chips have also changed over time, with the shift away from personal computers to smartphones, with demand emerging from automobile, crypto and gaming companies in the last decade. Over the last few years, data processing has also emerged as demand driver, and it is safe the say that more and more of the global economy is driven by computer chips: Semiconductor Industry Association The forecasts for the future (2030), were for faster growth in automobile and industry electronics, but the potential surge in demand from AI products was largely underplayed, showing how quickly market forecasts can be subsumed by changes on the ground. NVIDIA: The Opportunist! NVIDIA was founded in 1993 by Jensen Huang, but it remained a niche player until the early parts of this century. Much of its rise has come in the last decade, just as revenues for the overall semiconductor business were starting to level off, and in this section, we will look through the company's history, looking for clues to its success and current standing. 1. Opportunistic Growth, with Profitability NVIDIA went public in January 22, 1999, with the dot-com boom well under way, and its stock price popped by 64% on the offering date. At the time of its public offering, the company was money-making, but with small revenues of $160 million, making it a bit player in the business. As you can see in the graph below, those revenues grew between 2000 and 2005, to reach $2.4 billion in 2005. In the following decade (2006-2015), the annual revenue growth rate dropped back to 7-8% a year, but that growth allowed the company to make the top ten list of semiconductor companies by 2010. Well-timed bets on gaming and crypto created a surge in the revenue growth rate to 27.19% between 2016-2020, and that growth has continued into the last two years: There are two impressive components to NVIDIA's history. The first is that it has been able to maintain impressive growth, even as the industry saw a slowing of revenue growth (3.97% between 2011-2020). The second is that this high revenue growth has been accompanied not just with profits, but with above-average profitability, as NVIDIA's gross and operating margins have run ahead of industry averages. NVIDIA has clearly embraced a strategy of investing ahead of, and going after, growth markets for the chip business, and that strategy has paid off well. Thus, its current dominant positioning in the AI chip business can be viewed as more evidence of that strategy at play. There is one final component to NVIDIA's business model that needs noting, both from a profitability and risk perspective. NVIDIA 's core business is built around research and chip design, not chip manufacturing, and it outsources almost all of its chip production to TSMC. Its margins then come from its capacity to mark up the prices of these chips and it is exposed to the risks that any future China-Taiwan tensions can disrupt its supply chain. 2. Large, albeit Productive Reinvestment While NVIDIA's growth and profitability have been impressive, the value cycle is not complete until you bring in the investment that the company has had to make to deliver that growth. With a semiconductor company, that reinvestment includes not only investing in manufacturing capacity, but also in the R&D to create the next generation of chips, in terms of power and capability. As with the sector, I capitalized R&D at NVIDIA, using a 5-year life, and recalculated my operating income (since the reported version is built on the accounting mis-reading of R&D as an operating expense). That results in a corrected version of pre-tax operating margin for NVIDIA that was 37.83% and a pre-tax return on capital of 24.42% in 2021-2023: I also computed a sales to capital ratio, measuring the dollars of sales for each dollar of capital invested. In 2022, that number, for NVIDIA, was 0.65, indicating that this is definitely not a capital-light business and that NVIDIA has invested heavily to get to where it is today, as a company. 3. With a Mega Market Payoff NVIDIA's success on the operating front has impressed financial markets, and its rise in market capitalization from its IPO days to a trillion-dollar value can be seen below: I know that there are many who are regretting their lack of foresight, in not owning NVIDIA through its entire run, but recognize that this was not a smooth ride to the top. In fact, the company had near-death experiences, at least in market value term, in 2002 and 2008, losing more than 80% of its market value. That said, I owe my lucky run with NVIDIA to one of those downturns in 2018, when the company lost more than 50% of its market value, and it is a lesson that I hope will come through this chart. Even the biggest winners in the market have had periods when investors have turned intensely negative on their prospects, making them attractive as investments for value-focused investors. AI: From Promise to Profits Since much of the run-up in NVIDIA in the last few months has come from talk about AI, it is worth taking a detour and examining why AI has become such a powerful market driver, and perhaps looking at the past for guidance on how it will play out for investors and businesses. Revolutionary or Incremental Change? I am old enough to be both a believer and a skeptic on revolutionary changes in markets, having seen major disruptors play out both in my personal life and my portfolio, starting with personal computers in the 1980s, the dot-com/online revolution in the 1990s, followed by smartphones in the first decade of this century and social media in the last decade. What set these changes apart was that they not only affected wide swathes of businesses, some positively and some adversely, but that they also changed the ways that we live, work and interact. In parallel, we have also seen changes that are more incremental, and while significant in their capacity to create new businesses and disruption, don't quite qualify as revolutionary. I won't claim to have any special skills in being able to distinguish between the two (revolutionary versus incremental), but I have to keep trying, since failing to do so will result in my losing perspective and making investing mistakes. Thus, I was unable to share the belief that some seemed to have about the "Cloud" and "Metaverse" businesses being revolutionary, since I saw them more as more incremental than revolutionary change. So, where does AI fall on this spectrum from revolutionary to incremental to minimalist change? A year ago, I would have put it in the incremental column, but ChatGPT has changed my perspective. That was not because ChatGPT was at the cutting edge of AI technology, which it is not, but because it made AI relatable to everyone. As I watched my wife, who teaches fifth grade, grapple with students using ChatGPT to do homework assignments. and with my own students asking ChatGPT questions about valuation that they would have asked me directly, the potential for AI to upend life and work is visible, though it is difficult to separate hype from reality. Business Effects If AI is revolutionary change and will be a key market driver for this decade, what does this mean for investors? Looking back at the revolutionary changes from the last four decades (PCs, dot-com/internet, smartphones and social media), there are some lessons that may have application to the AI business. A Net Positive for Markets? Does revolutionary change help the overall economy and/or equity markets? The results from the last four decades is mixed. The PC-driven tech revolution of the 1980s coincided with a decade of high stock market returns, as did the dot-com boom in the next decade, but the first decade of this century was one of the worst in market history as stock prices flatlined. Stocks did well again over the last decade, with technology as the big winner, and over the four decades of change (1980-2022), the annual return on stocks has been marginally higher than in the five decades prior. Historical Stock Returns for US Given equity market volatility, four decades is a short time period, and the most that we can discern from this data is that the technological changes have been a net positive, for markets, albeit with added volatility for investors. With a few Big Winners and Lots of Wannabes and Losers: It is indisputable that each of the revolutionary changes of the last four decades has created winners within the space, but a few caveats have also emerged. The first is that these changes have given rise to businesses where there are a few big winners, with a few companies dominating the space, and we have seen this paradigm play out with software, online commerce, smartphones and social media. The second is that the early leaders in these businesses have often fallen to the wayside and not become the big winners. Finally, each of these businesses, successful though they have been in the aggregate, have seen more than their share of false starts and failures along the way. For investors, the lesson has to be that investing in revolutionary change, ahead of others in the market, does not translate into high returns, if you back the wrong players in the race, or more importantly, miss the big winners. It is true that at this very early stage of the AI game, the market has anointed NVIDIA and Microsoft as big winners, but it is entirely possible that a decade from now, we will be looking at different winners. At the stage of the hype cycle, it is also true that almost every company is trying to wear the AI mantle, just as every company in the 1990s aspired to have a dot-com presence and many companies claimed to have "user-intensive" platforms in the last one, As investors, separating the wheat from the chaff will only get more difficult in the coming months and years, and it is part of the learning process. To the argument that you could buy a portfolio of companies that will benefit from AI and make money from the few that succeed, past market experience suggests that this portfolio is more likely to be over than under priced. With Disruption: The market is littered with the carcasses of what used to be successful businesses that have been disrupted by technological change. Investors in these disrupted companies not only lose money, as they get disrupted, but worse, invest even more in them, drawn by their "cheapness". This happened, just to provide two examples, with investors in the brick-and-mortar retail companies that were devastated by online retail, and with investors in the newspaper/traditional ad companies that were upended by online advertising. If AI succeeds in its promise, will there be businesses that are upended and disrupted? Of course, but we are in the hype phase, where much more will be promised than can be delivered, but the biggest targets will come into focus sooner rather than later. The bottom line is that even if we all agree that AI will change the way businesses and individuals behave in future years, there is no low-risk path for investors to monetize this belief. Value Effects If history is any guide, we are in the hype phase of AI, where it is oversold as the solution to.. [Image] Here are Some More Investing Tips and Resources. Enjoy! Sponsored [Click here to reserve your seat now!]( [AI's Winners, Losers and Wannabes: An NVIDIA Valuation, with the AI Boost!](?site= I will start this post with a couple of confessions. The first is that my portfolio has held up well this year, in a market that has been top-heavy and tech-driven, and one big reason is that it contains both NVIDIA and Microsoft, two companies that have benefited from the AI story. The second is that much as I would like to claim credit for foresight and forward thinking, AI was not even a speck in my imagination when I bought these stocks (Microsoft in 2014 and NVIDIA in 2018). I just happened to be in the right place at the right time, a reminder again that being lucky often beats being smart, at least in markets. That said, NVIDIA’s soaring stock price has left me facing that question of whether to cash out, or let my money ride, and thus requires an assessment of how the promise of AI play’s out in its value. Along the way, I will take a look at the promise of AI, as well as the perils for investors, drawing on lessons from the past. The Semiconductor Business The semiconductor business, in its current form, had its growth spurt as a consequence of the PC revolution of the 1980s, as personal computers transitioned from tools and playthings for geeks to everyday work instruments for the rest of us. In the last four decades, computer chips have become part of almost everything we use, from appliances to automobiles, and the companies that manufacture these chips have seen their fortunes rise, and sometimes be put at risk, as technology shifts. 1. From High Growth to Maturity! It was the personal computer business in the 1980s that gave the semiconductor business, as we know it, its boost, and as technology has increasingly entered every aspect of life, the semiconductor business has grown. To map the growth, I started by looking at the aggregated revenues of all global semiconductor companies in the chart below from 1987 to 2023 (through the first quarter): Source: Semiconductor Industry Association From close to nothing at the start of the 1980s, revenues at semiconductor companies surged in the 1980s and 1990s, first boosted by the PC business and then by the dot-com boom. From 2001 to 2020, revenue growth at semiconductor businesses has dropped to single digits, as higher demand for chips in new uses has been offset by loss of pricing power, and declining chip prices. While revenue growth has picked up again in the last three years, the business has matured. 2. Sustained Profitability, with Cycles! The semiconductor business has generally been a profitable one for much of its existence, as can be seen in the aggregate margins of companies in the business below: While gross and operating margins have always been healthy, the pick up in both metrics since 2010 is a testimonial to the higher profitability in some segments of the chip business, even as competition commoditized other segments. As can be seen in the periodic dips in profitability across time, there are cycles of profitability that have continued, even as the business has matured. It is worth noting that these margins are understated, because of the accounting treatment of R&D as an operating expense, instead of as a capital expenditure. The R&D adjusted operating margin at semiconductor companies is higher by about 2-4%, in every time period, with the adjustment to operating taking the form of adding back the R&D expense from the year and subtracting out the amortization of R&D expenses over the prior five years (using straight line amortization). 3. Love-Hate Relationship with Markets! As the semiconductor business has acquired heft, in terms of revenues and profitability, investors have priced those operating results into the market capitalization assigned to these companies. In the graph below, I report the collective enterprise value and market capitalization of global semiconductor companies, stated in US dollar terms: As you can see, the semiconductor companies have enjoyed long periods of glory, interspersed with periods of pain in markets, starting with a decade of surging market capitalizations in the 1990s, followed by a decade in the wilderness, with stagnant market capitalization, between 2000 and 2010, before another decade of growth, with market capitalizations surged six-fold between 2011 and 2020. Note that for the most part, semiconductor companies carry light debt loads, leading to enterprise values that either trail in market capitalization in some years (because cash exceeds debt) or are very close to market capitalization in other years (because net debt is close to zero). As market capitalizations have risen and fallen, the multiple of revenues that semiconductor companies has also fluctuated, reaching a high in the dot-come era, with semiconductor companies trading collectively at more than seven times revenues to a long stretch where they traded at between two and three times revenues, before spiking again between 2019 and 2021. If prices are a reflection of what the market thinks about the future, the pricing of semiconductor companies seems to indicate an acceptance on the part of investors that the business has matured. 4. Shifting Cast of Winners and Losers! As the semiconductor business has matured, it has also changed in terms of both the biggest players in the business, as well as the largest customers for its products . In the table below, we show the evolution of the top ten semiconductor companies, in terms of revenues, from 1990 through 2023, at ten-year intervals: The cast of players has changed over time, with only two companies from the 1990 list (Intel and Texas Instruments) making it to the 2023 list. Over the decades, the Japanese companies on the list have slipped down or disappeared, to be replaced by Korean and Taiwanese firms, with Taiwan Semiconductors being the biggest mover, moving to the top of the list in 2022. After a long stretch at the top, Intel has dropped back down the list and ranked third, in terms of revenues, in 2022. Note that NVIDIA, the subject of this post, was eighth on the list in 2023, and has remained at that ranking from 2010. That may seem at odds with its rising market capitalization but it is indicative of the company's strategy of going after niche markets with high profitability, rather than trying to grow for the sake of growth. The customers for semiconductor chips have also changed over time, with the shift away from personal computers to smartphones, with demand emerging from automobile, crypto and gaming companies in the last decade. Over the last few years, data processing has also emerged as demand driver, and it is safe the say that more and more of the global economy is driven by computer chips: Semiconductor Industry Association The forecasts for the future (2030), were for faster growth in automobile and industry electronics, but the potential surge in demand from AI products was largely underplayed, showing how quickly market forecasts can be subsumed by changes on the ground. NVIDIA: The Opportunist! NVIDIA was founded in 1993 by Jensen Huang, but it remained a niche player until the early parts of this century. Much of its rise has come in the last decade, just as revenues for the overall semiconductor business were starting to level off, and in this section, we will look through the company's history, looking for clues to its success and current standing. 1. Opportunistic Growth, with Profitability NVIDIA went public in January 22, 1999, with the dot-com boom well under way, and its stock price popped by 64% on the offering date. At the time of its public offering, the company was money-making, but with small revenues of $160 million, making it a bit player in the business. As you can see in the graph below, those revenues grew between 2000 and 2005, to reach $2.4 billion in 2005. In the following decade (2006-2015), the annual revenue growth rate dropped back to 7-8% a year, but that growth allowed the company to make the top ten list of semiconductor companies by 2010. Well-timed bets on gaming and crypto created a surge in the revenue growth rate to 27.19% between 2016-2020, and that growth has continued into the last two years: There are two impressive components to NVIDIA's history. The first is that it has been able to maintain impressive growth, even as the industry saw a slowing of revenue growth (3.97% between 2011-2020). The second is that this high revenue growth has been accompanied not just with profits, but with above-average profitability, as NVIDIA's gross and operating margins have run ahead of industry averages. NVIDIA has clearly embraced a strategy of investing ahead of, and going after, growth markets for the chip business, and that strategy has paid off well. Thus, its current dominant positioning in the AI chip business can be viewed as more evidence of that strategy at play. There is one final component to NVIDIA's business model that needs noting, both from a profitability and risk perspective. NVIDIA 's core business is built around research and chip design, not chip manufacturing, and it outsources almost all of its chip production to TSMC. Its margins then come from its capacity to mark up the prices of these chips and it is exposed to the risks that any future China-Taiwan tensions can disrupt its supply chain. 2. Large, albeit Productive Reinvestment While NVIDIA's growth and profitability have been impressive, the value cycle is not complete until you bring in the investment that the company has had to make to deliver that growth. With a semiconductor company, that reinvestment includes not only investing in manufacturing capacity, but also in the R&D to create the next generation of chips, in terms of power and capability. As with the sector, I capitalized R&D at NVIDIA, using a 5-year life, and recalculated my operating income (since the reported version is built on the accounting mis-reading of R&D as an operating expense). That results in a corrected version of pre-tax operating margin for NVIDIA that was 37.83% and a pre-tax return on capital of 24.42% in 2021-2023: I also computed a sales to capital ratio, measuring the dollars of sales for each dollar of capital invested. In 2022, that number, for NVIDIA, was 0.65, indicating that this is definitely not a capital-light business and that NVIDIA has invested heavily to get to where it is today, as a company. 3. With a Mega Market Payoff NVIDIA's success on the operating front has impressed financial markets, and its rise in market capitalization from its IPO days to a trillion-dollar value can be seen below: I know that there are many who are regretting their lack of foresight, in not owning NVIDIA through its entire run, but recognize that this was not a smooth ride to the top. In fact, the company had near-death experiences, at least in market value term, in 2002 and 2008, losing more than 80% of its market value. That said, I owe my lucky run with NVIDIA to one of those downturns in 2018, when the company lost more than 50% of its market value, and it is a lesson that I hope will come through this chart. Even the biggest winners in the market have had periods when investors have turned intensely negative on their prospects, making them attractive as investments for value-focused investors. AI: From Promise to Profits Since much of the run-up in NVIDIA in the last few months has come from talk about AI, it is worth taking a detour and examining why AI has become such a powerful market driver, and perhaps looking at the past for guidance on how it will play out for investors and businesses. Revolutionary or Incremental Change? I am old enough to be both a believer and a skeptic on revolutionary changes in markets, having seen major disruptors play out both in my personal life and my portfolio, starting with personal computers in the 1980s, the dot-com/online revolution in the 1990s, followed by smartphones in the first decade of this century and social media in the last decade. What set these changes apart was that they not only affected wide swathes of businesses, some positively and some adversely, but that they also changed the ways that we live, work and interact. In parallel, we have also seen changes that are more incremental, and while significant in their capacity to create new businesses and disruption, don't quite qualify as revolutionary. I won't claim to have any special skills in being able to distinguish between the two (revolutionary versus incremental), but I have to keep trying, since failing to do so will result in my losing perspective and making investing mistakes. Thus, I was unable to share the belief that some seemed to have about the "Cloud" and "Metaverse" businesses being revolutionary, since I saw them more as more incremental than revolutionary change. So, where does AI fall on this spectrum from revolutionary to incremental to minimalist change? A year ago, I would have put it in the incremental column, but ChatGPT has changed my perspective. That was not because ChatGPT was at the cutting edge of AI technology, which it is not, but because it made AI relatable to everyone. As I watched my wife, who teaches fifth grade, grapple with students using ChatGPT to do homework assignments. and with my own students asking ChatGPT questions about valuation that they would have asked me directly, the potential for AI to upend life and work is visible, though it is difficult to separate hype from reality. Business Effects If AI is revolutionary change and will be a key market driver for this decade, what does this mean for investors? Looking back at the revolutionary changes from the last four decades (PCs, dot-com/internet, smartphones and social media), there are some lessons that may have application to the AI business. A Net Positive for Markets? Does revolutionary change help the overall economy and/or equity markets? The results from the last four decades is mixed. The PC-driven tech revolution of the 1980s coincided with a decade of high stock market returns, as did the dot-com boom in the next decade, but the first decade of this century was one of the worst in market history as stock prices flatlined. Stocks did well again over the last decade, with technology as the big winner, and over the four decades of change (1980-2022), the annual return on stocks has been marginally higher than in the five decades prior. Historical Stock Returns for US Given equity market volatility, four decades is a short time period, and the most that we can discern from this data is that the technological changes have been a net positive, for markets, albeit with added volatility for investors. With a few Big Winners and Lots of Wannabes and Losers: It is indisputable that each of the revolutionary changes of the last four decades has created winners within the space, but a few caveats have also emerged. The first is that these changes have given rise to businesses where there are a few big winners, with a few companies dominating the space, and we have seen this paradigm play out with software, online commerce, smartphones and social media. The second is that the early leaders in these businesses have often fallen to the wayside and not become the big winners. Finally, each of these businesses, successful though they have been in the aggregate, have seen more than their share of false starts and failures along the way. For investors, the lesson has to be that investing in revolutionary change, ahead of others in the market, does not translate into high returns, if you back the wrong players in the race, or more importantly, miss the big winners. It is true that at this very early stage of the AI game, the market has anointed NVIDIA and Microsoft as big winners, but it is entirely possible that a decade from now, we will be looking at different winners. At the stage of the hype cycle, it is also true that almost every company is trying to wear the AI mantle, just as every company in the 1990s aspired to have a dot-com presence and many companies claimed to have "user-intensive" platforms in the last one, As investors, separating the wheat from the chaff will only get more difficult in the coming months and years, and it is part of the learning process. To the argument that you could buy a portfolio of companies that will benefit from AI and make money from the few that succeed, past market experience suggests that this portfolio is more likely to be over than under priced. With Disruption: The market is littered with the carcasses of what used to be successful businesses that have been disrupted by technological change. Investors in these disrupted companies not only lose money, as they get disrupted, but worse, invest even more in them, drawn by their "cheapness". This happened, just to provide two examples, with investors in the brick-and-mortar retail companies that were devastated by online retail, and with investors in the newspaper/traditional ad companies that were upended by online advertising. If AI succeeds in its promise, will there be businesses that are upended and disrupted? Of course, but we are in the hype phase, where much more will be promised than can be delivered, but the biggest targets will come into focus sooner rather than later. The bottom line is that even if we all agree that AI will change the way businesses and individuals behave in future years, there is no low-risk path for investors to monetize this belief. Value Effects If history is any guide, we are in the hype phase of AI, where it is oversold as the solution to.. 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