US market has been going up like crazy for the past one month.
It is definitely making us think whether it is a AI bubble like a dot com bubble.
To understand whether it is a bubble, we should know some basics about AI and its potential.
This episode is an attempt to explain AI in simple terms.
Hello Everyone. My name is Vijay Mohan and you are watching - Investment Insights.
To understand how fast things are changing in innovation world, we have to look back at the history of innovation cycles.
Visual Capitalist has captured that in a beautiful infographic.
We can see how each innovation cycle has been shrinking for the past 250 years.
The first wave of innovation cycle started in 1785 and lasts for 60 years.
It is the period of Industrial revolution. World's first factory was started as a cotton mill in Britain.
Railways expanded in second wave. It lasted for 55 years.
Electricity, chemicals and cars dominated the third wave.
Henry Ford introduces car assembly line and revolutionized the automobile industry.
It is very surprising to think that this all happened just 100 years back.
This third wave lasted for 50 years.
Airplane takes center stage in 4th wave. This cycle lasted for 40 years.
Digital innovation kicked off in 5th wave.
Computers, software, internet - everything that we see as Technology Today expanded aggressively during this cycle.
This cycle lasted for 30 years. It began in 1990.
At that time, very few have actually seen an actual computer back home.
But when that cycle ended in 2020, almost everyone has a mini computer in their pocket.
We have gone through a significant change in the last 30 years.
As it happened gradually little by little, most of us wouldn't have even realized that we have come this far in just 30 years.
When the first wave lasted for 60 years, the fifth wave lasted for only 30 years.
Already we are in 6th wave. A.I. Artificial Intelligence.
This 6th wave is expected to last for another 25 years.
The reason for each of these innovation cycles shrink is because of the "Accumulative Advantage".
We have already covered about "Accumulative Advantage" in detail in this channel.
Each innovation wave is contributing to the next wave to go faster.
That is why the current AI wave is expected to last for 25 years. It could be even shorter.
We know about AI for a long time.
Spielberg's Artificial Intelligence released in 2001.
I heard about AI for the first time because of that movie.
All this time, we have imagined the use of AI, but never got a chance to use it.
Up until ChatGPT.
OpenAi introduced chatGPT last November.
That was the day, AI came into main stream.
Anyone who used ChatGPT was blown away.
It just awed us with its power.
Many today use ChatGPT as their personal assistant.
Do you want to respond professionally in an email?
Do you want to create an itinerary for your next trip?
Do you need a logic help for your coding?
ChatGPT comes to the rescue.
ChatGPT has now become a part of our daily life.
It all happened in just last 6 months.
As if this is not enough, openAI released chatGPT 4.0 version.
It reduced the gap between a human and a machine even further.
ChatGPT scored more than 80th percentile in most of the competitive exams.
We can expect chatGPT to score more than 80th percentile in all the subject in near future.
That means, our personal assistant is not a normal person, but better than 80% of people.
Many focus on chatGPT's short comings. But think about it.
If we try to hire a personal assistant, is it possible to get a person better than 80% of folks? Not easy.
ChatGPT shows the progress we have made in language model. It is just one part of Generative AI.
Generative AI means, any new content created by AI machine learning.
When chatGPT can create blog content, Dall-E, Midjourney can create the images we are asking for.
The image we see here is "a shocked fish in a fish bowl" - created using Adobe firefly.
We have an Italian Pizza and a Chettinad Chicken Masala.
A chef could creatively combine these two to create a new unique pizza flavor. That is creativity.
AI can provide food for that creativity hunger.
It will bring out many interesting combinations that we have never thought about.
When generative AI is helping content creators a lot, AI has made significant progress in other areas as well.
You would have seen Boston Dynamics' Atlas Robot.
We have come very far in Robotics field.
When AI is growing this fast, wouldn't AI take over our jobs?
It is natural to get that fear.
When a taxi was introduced into the market, what would have been the reaction of a horse cart rider?
It would have definitely created a fear. But that change did not happen over night. It took decades.
Riders who were so adamant about training on anything else other than horse riding, eventually got outdated and lost their jobs.
But the riders who noticed the growth of taxi market and adapted themselves to learn car driving, not just survived, but flourished.
So the key here is, how adaptable are we, for the changes that are happening around us? That decides our growth.
We could potentially take advantage of this change that is happening now.
So instead of worrying about losing our jobs, we should focus on where the job growth is and should develop that knowledge and skills.
We should not end up stagnant without learning anything.
Just like a horse cart was replaced with taxies, many new jobs will keep coming into the market.
When an ATM was introduced, everyone was worried that there will not be a bank teller any more in the future.
But even today, there are tellers in the bank.
But as consumers, we do not have to stand in line in a bank to withdraw money like we used to.
We will just go to an ATM and withdraw the money, saving ourself a significant amount of time.
We can be more productive in those saved hours.
AI will do the same. It will save significant amount of time for us.
Let's take a Doctor. It will become easier for them to diagnose a problem for their patients from their blood work and their health history.
Don't we appreciate a doctor their many years of experience? AI can give that experience from day 1.
Here in US, doctors have to spend significant of their time in filling out documentation.
They all can be automated easily in the future.
When all this happens, it will save significant amount of time.
That will enable them to focus on their specialty - treating patients.
They will get to see more patients. It will also be easier for patients to get an appointment instead of waiting for many days.
When a doctor sees 15 patients instead of 10 patients, what happens to the income of the hospital? It will go up by 50%.
Similarly, lets take an advocate for example. He has a case to handle.
He is looking for good arguments to win the case.
If AI has records of all the old cases, the advocate can take advantage of it.
AI itself can create strong arguments for them.
It will save significant amount of time for the advocate from research.
If he is saving time, then he can handle more cases. More cases mean, more income.
This is how AI will save time for all the employees in different sector.
This will automatically lead to increase in every company's revenue.
Sales force has launched "AI Cloud" this week.
AI Cloud's aim is to increase the productivity of all Sales force applications.
Marketing team used to send same emails to all their customers for marketing.
But now, they can generate unique marketing email that is specific for each customer. Personal touch.
Sales force is just an example of how all the companies have started integrating AI into their workflow.
AI is expected to increase the GDP by 7% in next 10-15 years.
We are in the early stage of this innovation cycle. All these are early prediction.
AI could grow significantly more than what we are expecting.
Or it can just go out busted.
But from what we are seeing till now, we can expect significant changes in the way we work in next 10 years.
As an investor, it is a golden time for us.
When AI is going to help improve the productivity, efficiency and the growth rate, it will definitely help the economy to expand further.
If it is good for economy, then it goes without saying that it will be good for investors as well.
So what kind of companies should we invest during times like this?
There is a saying. "During a gold rush, sell shovels".
This saying originated from gold rush happened in 1800 US.
It means, instead of running with the crowd to mine gold, it is better to do a business that supplies shovels to this crowd.
We do not know for sure whether AI growth is going to there in the future or not, but Today, everyone is running towards it.
One of the most important need for this AI machine learning is chips.
Not potato chips. Processor chips.
This will be the shovel for AI gold rush.
Because, all kind of machine learning depends on huge training data set.
We need huge storage space for storing the data and also a fast processor to process this data.
We have AWS, Azure, Google cloud for storage.
For processing power - AMD and Nvidia.
Regardless of whether these companies use AI or not, they provide tools and utilities for companies that use AI.
That is why, major tech players stock price has shot up in recent times. Nvidia, particularly.
When the market was expecting a revenue of $7 Billion for Nvidia's next quarter,
they shocked the market by giving a projection of $11 billion.
Since then, market realized the seriousness of the AI machine learning and paying close attention to it.
So for the question of whether we are in AI bubble, not yet.
We will definitely run into AI bubble. But we got long way to get there.
We should start seeing an AI company coming as IPO every week.
It should come in with no revenue but with many billion dollar valuation.
Just like many .com companies came in during the .com bubble.
That is when we can say that the bubble has peaked. Till then, it will just grow big.
"All that is OK. But Nvidia is a real company.
"They are expecting a revenue of $11 billion in next quarter.
"But its value today is more than a Trillion.
"Even if we assume that its annual revenue is $44 billion, its price to sales ratio is 22.
"Isn't that a crazy valuation? If yes, isn't that a bubble?"
Good question. We will take a closer look at that in the next episode. Thanks for watching.