Artificial Intelligence: The Next Industrial Revolution?

Steve Jobs once famously said, “computers are like a bicycle for our mind.”  Given the recent advances in artificial intelligence (AI) enabled tools, applications, and services, that bicycle has become incredibly powerful, and is now capable of things that seemed like science fiction just a few years ago. For example, the image at the top of this post was drawn by AI using DALL-E 2.

Below is a list of some of the most mind-bending accomplishments that people and machines are achieving with the latest technologies:

• ChatGPT-4 passed the bar exam with a 90% percentile score.  It also took the SAT and got scores in the 93rd and 89th percentile on the reading and math sections, respectively. 

• A person programmed a 3D game “space runner” game from scratch – using: Replit, Claude, MidJourney and Chat GPT-4.  The effort took three days, and the programmer had no prior experience with 3D game programming.

• People are having AI plan itineraries for vacations

• One person explored the age-old question – “what would it look like if the cast of Harry Potter were Balenciaga models?” 

• And of course, cars, using AI, can drive you around:

  • Tesla

  • Google/Waymo

  • GM Cruise

We are keeping an eye on these developments because we could see major disruptions to existing business models. There are certainly investment opportunities available related to this.

At the same time, one must be careful not to just invest in a theme – one must invest in actual businesses that can make money from the theme. Two important historical examples are in the transportation industry – where investing in the themes of automobiles or airplanes has yielded very poor results for investors. Warren Buffet, at his famous Sun Valley speech in 1999, said the following:

“All told, there appear to have been at least 2,000 car make[r]s, in an industry that had an incredible impact on people's lives. If you had foreseen in the early days of cars how this industry would develop, you would have said, "Here is the road to riches." So what did we progress to by the 1990s? After corporate carnage that never let up, we came down to three U.S. car companies--themselves no lollapaloozas for investors. So here is an industry that had an enormous impact on America--and also an enormous impact, though not the anticipated one, on investors.

The other truly transforming business invention of the first quarter of the century, besides the car, was the airplane--another industry whose plainly brilliant future would have caused investors to salivate. So I went back to check out aircraft manufacturers and found that in the 1919-39 period, there were about 300 companies, only a handful still breathing today…

Move on to failures of airlines. Here's a list of 129 airlines that in the past 20 years filed for bankruptcy. Continental was smart enough to make that list twice. As of 1992, in fact--though the picture would have improved since then--the money that had been made since the dawn of aviation by all of this country's airline companies was zero. Absolutely zero.”

There is a modern day version of this. Take a look at the returns of Electric Vehicle companies – in 2021, sales in the US more than doubled relative to 2020.  Despite this massive growth, the newer US-based companies in the space are all down since becoming public, and NKLA and Rivian are down more than 80% each.

Source: Google Finance (through April 4, 2023)

A great theme does not mean companies pursuing that theme are great.  At Ahara Advisors, we are looking for great companies that will benefit from using artificial intelligence. As with any other company, we try to make sure we are paying prices that stack the odds toward a favorable investment return over the long term.