It Pays to Look Beyond Big Tech's Latest Investments

In today's Masters Series, adapted from the November 28, 2023 and June 28 issues of the free Altimetry Daily Authority e-letter, Joel explains why targeting the companies that supply the AI revolution is the best way to profit from it... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Master Series] Editor's note: [Don't follow the herd](... The emergence of artificial intelligence ("AI") has caused investors to flood into technology stocks to capitalize on the ongoing AI boom. Tech companies are boosting investments into cloud-computing infrastructure to keep up with this trend. That will improve revenue, but Joel Litman – chief investment strategist for our corporate affiliate Altimetry – says this extra spending doesn't guarantee higher gains for investors looking to get in on AI stocks. In today's Masters Series, adapted from the November 28, 2023 and June 28 issues of the free Altimetry Daily Authority e-letter, Joel explains why targeting the companies that supply the AI revolution is the best way to profit from it... --------------------------------------------------------------- It Pays to Look Beyond Big Tech's Latest Investments By Joel Litman, chief investment strategist, Altimetry OpenAI's latest project is turning a lot of heads... GPT-4o is supposed to be its best AI model yet. And it has AI enthusiasts and investors excited, especially after the OpenAI team demonstrated several of its features live. It can translate a conversation between most languages on the planet. It can tutor you on math problems. It can even give you fashion advice. And what's even more wild... its predecessor, GPT-4, passed some of the most difficult tests in the world. It even received a passing score on the Bar, the law licensure exam. Deep learning is just so versatile. And this model is a glimpse of what the future might look like. With so much advancement already, we could someday see completely autonomous assistants following each person around in the future. But that day will not be today. And it likely won't be for decades. While GPT-4o and other top-notch AI models are revolutionary, there are still so many concerns surrounding using them... and investing in them. To get a better idea of GPT-4o's ability, I did some "boots on the ground" research... --------------------------------------------------------------- Recommended Link: [Sell All Your Stocks by July 18?]( Warren Buffett's favorite stock market indicator is flashing RED. He warned we're dangerously close to "playing with fire." And now, a massive move in stocks could soon follow. Is it time to brace yourself for one of the most bewildering and devastating months in financial history? [Here's exactly what to do with your money to prepare now](. --------------------------------------------------------------- I asked GPT-4o to make a reservation at a steakhouse in Boston. All I gave it was the name of the restaurant... and told it I wanted a 7 p.m. reservation that night. Within a few seconds, it confirmed my reservation. It said I could expect an e-mail with further confirmation. The only issue was... I never gave it my e-mail address. Nor did that e-mail ever come. Like all of its predecessors, GPT-4o can't fully access the Internet. It can't send e-mails. Without some prodding, though, it probably won't tell you that. These language models aim to please. When you enter in a question, request, or prompt, the model doesn't scour the web like Google to give you an answer. Instead, it crafts what it thinks you want to see... even if it's an outright lie. When Google parent Alphabet (GOOGL) launched its chatbot, formerly known as Bard, one ad showed it answering the question... "What new discoveries from the James Webb Space Telescope can I tell my 9-year-old about?" Bard responded that the telescope, which only started operating in 2021, took the first picture of a planet outside our solar system. Reuters then pointed out that another telescope took pictures of an "exoplanet" back in 2004. And in my restaurant-reservation example, I had to confront the AI before it admitted that it doesn't have the ability to make reservations. That's why, when you're using these tools, it's so important to be responsible and intelligent about it. Be extremely careful about what you ask it to do. And don't accept its answers at face value. AI won't tell you what it is and isn't capable of. It's not guaranteed to give you true information. And accuracy isn't the only limiting factor weighing on AI businesses right now. You see, AI takes a lot of power... Nvidia's (NVDA) AI graphics processing units ("GPUs") consume way more power than typical GPUs and even more than your average computer. A GPU in a computer used for gaming and videos takes maybe 200 watts of power. But the current AI-focused GPUs can use up to 700 watts. And each cloud server contains eight GPUs. In other words, an AI cloud server uses about 30 times more power than a regular server. And we're building more data centers to house these servers. Remember, AI relies on huge datasets to make calculations. All of that data needs to be accessible around the world, which means it needs to be stored on the cloud. However, with the recent ramp-up in folks using AI, the world's existing cloud infrastructure is under stress... So to satisfy growing demand, tech companies are investing hand over fist. In the third quarter of 2023 alone, Amazon (AMZN), Microsoft (MSFT), and Alphabet spent a combined $32 billion investing in cloud-computing infrastructure. This year, their investments are projected to hit $95 billion. By 2025, they're expected to exceed $125 billion. Numbers like these tend to get investors excited. After all, this sounds like a huge buying opportunity in the AI space. But these AI investments won't boost profits... Amazon, Microsoft, and Alphabet are building cloud infrastructure specifically for use in AI. The issue is that cloud storage is basically a commodity. And cloud-computing offerings don't vary much between these three companies... So customers are going to shop based on price. We saw the same thing happen over the past few years in the 5G space. The first 5G-enabled device launched in 2019. And the big broadband providers were quick to start building out 5G infrastructure to support those devices. Telecom giants like AT&T (T), Verizon Communications (VZ), and T-Mobile (TMUS) have spent nearly $50 billion per year building towers to support 5G broadband. Yet, despite their investments, these companies aren't able to charge more for their 5G services... because they all compete with one another. Ultimately, these companies are spending billions on investments that won't help improve profitability. Building a commodity business just to satisfy demand doesn't generate much value for shareholders, either... Even though 5G investments ramped up between 2019 and 2021, most telecom stocks performed poorly... For example, both Verizon and AT&T shares lost value over this period. And while T-Mobile actually beat the market, it really only did so because of its merger with Sprint. Combined, these three telecom giants averaged a mere 2% return compared with the S&P 500 Index's 38% gain. Take a look... On average, this group of telecom stocks remained relatively flat. Their 5G investments didn't actually help win more business... they just helped the companies tread water. A similar story is playing out for cloud-storage companies today. The three biggest names in this space are all spending billions just to stay competitive. And that spending won't come with better prices. While their investments may not make them more profitable, they should help them grow revenue at the very least. More companies are claiming to use AI and AI tools every day... And not all of those AI offerings are created equal. The AI revolution is like a gold rush... Everyone wants in on the action. New AI companies are popping up daily. In fact, the AI market is expected to grow more than 17% per year through 2030. That being said, investors should keep in mind that investing in cloud infrastructure alone won't help any of these businesses win the AI arms race... Some tools will lead investors to tremendous gains. Others will come up short. And just like any other gold rush, the best place for your money is in the companies supplying it. In the AI ecosystem, it's the suppliers that allow all these startups to function in the first place. By the time those startups get into trouble, Big Tech and hardware companies will have already made their money. Savvy investors should focus on the companies with the most to gain from supplying the AI boom – especially those with ample industry experience to stand on. The companies with the data will win no matter what. And the companies that are building the most unique tools – at the very heart of the AI industry – will be the big winners. That's where you should be looking for AI opportunities. Wishing you love, joy, and peace, Joel Litman --------------------------------------------------------------- Editor's note: Joel predicted the 2008 financial crisis and 2020 market rebound. Now, he's sounding the alarm with an urgent new warning... Joel says we're entering an AI arms race that will set off a huge stock market shift. And if it's anything like the first AI boom, we'll have the chance to secure multiple 1,000%-plus winners. So, he's going on camera on Thursday to explain how you can take advantage of this unique setup. [Click here to learn more](... --------------------------------------------------------------- Recommended Link: [The Sneaky (Yet 100% Legal) Way for Obama to Return to Power]( The ONLY way Democrats can keep the White House is to bring back Barack Obama. And there's a sneaky (yet 100% legal) way to achieve this. In fact, this scenario is already underway. See what they're up to and how you can get ready today. [Here's the full video exposé](. --------------------------------------------------------------- You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. 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