Why 2023 is the Year of Artificial Intelligence “AI”: Q&A with Chris Wood, Chief Investment Officer at RiskHedge
[Originally published in the Planet MicroCap Review Magazine Summer 2023 Issue]
1. I think it's safe to say that the sector/trend that by almost every metric had the most coverage, momentum, you name it....was Artificial Intelligence "AI": why do you think 2023 has been the year of AI?
I couldn’t agree more. It’s certainly safe to say that.
And it’s really been a long time coming.
As you know, the term “artificial intelligence” has been around since the mid-1950s. And businesses have been taking advantage of AI for years.
I wrote newsletters back in 2014 about how AI was already changing the world in countless ways. But every single application was for businesses.
What’s changed is that we’re now seeing consumer-facing AI applications for the first time.
So regular folks are recognizing how AI can affect their everyday lives. That’s driven a lot of hype in the space.
And it’s thanks to the new generative AIs like ChatGPT and DALL-E.
As you know these kinds of AIs can create unique content in the form of text, images, audio, and even video from a text prompt. So you don’t need to be able to write code to take advantage of them.
Like you can tell ChatGPT to write a poem about shrimp po-boys in the style of Robert Frost.
Or you could tell DALL-E to create a picture of the New York City skyline in the style of Pablo Picasso.
Pretty cool stuff.
The “transformer” neural network architecture first introduced by Google in 2017 allowed these consumer-facing applications to materialize.
2. We've seen many exciting new industries/sectors/trends in the last 10 years (Cannabis, Psychedelics, Crypto), what makes AI different from other "growth-y" trends?
Yeah, the main difference I see is that AI is a true general purpose technology… like the personal computer or the internet. But even more profound in terms of the productivity gains that are possible.
It’s these sorts of general purpose technologies that really make a difference in the world by spreading throughout all sectors of the economy and accelerating the march of economic progress.
When a breakthrough general purpose technology gets to the point where mass adoption is possible, the growth that comes with it is mind blowing.
And that’s what we’ve seen with AI this year.
3. From a research process perspective, can you leverage AI as part of the due diligence process? What AI tools out there have you used?
Absolutely.
Now, you should always check the accuracy of what these things spit out because of the “hallucination” issue. That’s when a large language model (LLM), like what ChatGPT is built upon, essentially makes up information.
In late June, for example, two New York lawyers were sanctioned for submitting a legal brief that included six fake case citations that were generated by ChatGPT.
So you must be careful. It’s best to treat these things like a junior analyst that you need to check. But as long as you take the hallucination issue into account, these AIs can definitely help with the research process.
Personally, I was using OpenAI’s ChatGPT Plus Browse with Bing beta feature. It was superior to regular ChatGPT because it used the most capable model (GPT-4) and was essentially stitched onto the Bing search engine, which allowed you to get up to date information beyond ChatGPT’s last “knowledge update” in September 2021.
Unfortunately, OpenAI disabled the plug-in on July 3 because it “can occasionally display content in ways we don’t want. For example, if a user specifically asks for a URL’s full text, it might inadvertently fulfill this request.”
OpenAI says it’s working to bring back this feature “as quickly as possible.”
Another option for now that works well is Bing Chat, which is built into the Microsoft Edge browser’s sidebar. It lets you choose the tone, the format, and the length of what you want it to write about. I recommend playing around with it to see how it could help you.
4. From an investing perspective, many companies are trying to capitalize on the AI trend and coming out with their "AI" tool - what are your criteria for separating the true AI contenders from the pretenders?
As a general rule, I tend to avoid stocks with AI in their names…
There is one tiny company with AI in its name that I recently recommended to my subscribers and I invested in personally. But this was a special case.
In general, I’d say stay away from the stocks with AI in their names.
It’s like what we saw with blockchain craze when stocks that added the word blockchain to their names or business descriptions saw their stocks pop. Then reality set in and they fell hard.
Remember in January when BuzzFeed said it was going to use AI to create content and the stock jumped more than 300% virtually overnight. It’s fallen 85% since then.
If you want to go back a little further it’s very similar to the stocks that put “dot com” in their names in the late 1990s… most of which fell apart.
I think a better way to look at the AI space is to start with industries and companies that make sense independent of AI.
You know find fast growing cash generating companies solving problems in big markets…
And then see how they’re taking advantage of AI to grow revenue and improve efficiency and profitability.
So think of how Google used AI to provide the best search results and beat out the competition way back when.
Or how Amazon used AI to provide the best product recommendations and essentially develop a new way to shop.
I also think it’s smart to look for companies riding the AI wave across all sectors of the economy. These are companies that provide something fundamental that all AI needs. Picks and shovels type things.
So they’ll benefit no matter who adopts AI.
You know like how regardless of the electric vehicle company, they all need batteries. So if you find the best EV battery company it’s probably a solid investment.
But applying that concept to AI.
So this would entail looking at the hardware and infrastructure layers of AI rather than the application layer.
A company like NVIDIA would fit the bill here.
As you know NVIDIA’s GPUs power most AI projects.
It’s important to be aware of the amazing run that NVIDIA’s stock has been on… and the fact that it’s not an AI pure play. But I don’t see demand for its AI chips declining anytime soon… quite the opposite in fact.
5. Will 2023 continue to be the year of AI? Why/why not? And, how should we think about AI's evolution for the next 3-5 years?
Well, we could definitely see a pullback in the well-known AI pure plays like C3.ai (AI), BigBear.ai Holdings (BBAI), and SoundHound AI (SOUN).
In fact, we’ve already seen that with BigBear.ai. It’s fallen more than 65% from its February highs.
But AI itself is not just here to stay, it’s arguably the biggest disruption in history. And it will continue chugging along for decades to come.
There’s an important thing to keep in mind here: This is the WORST AI is ever going to be. It’s only going to get better from here. And it’s already quite impressive.
I’m not smart enough to be able to predict how AI will evolve over the next 3 to 5 years… or even the next six months really. And I’m okay with that. I mean how many folks could have predicted how the internet and world wide web would evolve?
That’s what makes human beings exceptional… our ability to create previously unimaginable products and services once these kinds of general purpose technologies are unleashed.
But I am smart enough to know that if you’re not paying attention to AI and doing all you can to learn about it and leverage it, then you’re going to be left behind… whether you’re an individual or a business.
For more information about Chris Wood and RiskHedge, please visit: www.riskhedge.com
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