Blain’s Morning Porridge 21^st May 2024 – The AI revolution… yawn… what next?

“There is Stuff that is. There is Stuff that might be. And Stuff that simply isn’t.”

The markets expect Nvidia will bat it out the park… Unlimited joy and upside awaits! Is the pursuit of AI “maybe’s” overdone? There are plenty of real, positive and profitable investments out there – without the disappointment risk of having backed yet another hollow Tech pipedream.

The big story Wednesday will be Nvidia – just how much will the golden poster king of the AI revolution’s numbers push the market higher? Everything hangs on just how enthusiastically the stock markets will receive their Q1 earnings…. and further commit their souls to the Church of AI! Halleluiah!

Yet, there are some naysayers who have the temerity to question the faith:

• Poor, pitiful delusional fools who don’t properly perceive the absolute glory of the AI wave that Nvidia crests…
• Some fail to perceive the differences between sophisticated (but dumb) data-crunching Algorithms and the intrinsic superiority of AI – which seems to be that anything with AI in its pitch deck is worth three-times as much.
• Some suggest Nvidia is already pretty fully priced.. perish the thought!
• Some say AI is just a fad, a momentary fashion.
• There are even some foolish small children on the edge of the parade wondering what all the fuss is about, and asking why a plump naked chap wearing a crown is parading down Wall Street…

The expectations are Nvidia will present a full-deck of earnings beats. That’s bound to attract reactive money, “sitting on the sidelines” as they say, and then all the stock trackers will have to follow, thus pushing the stock higher, and confirming Nvidia is worth more, thus… repeat ad nauseum.

Oh dear… I’ve seen this before…

Maybe the market should pause for breath, take a look at who is finding real-use cases for AI, analyse who is buying all the AI Chips – and why, and think about who is formulating products exploiting AI processing power to create “AI” based businesses, with tangible income and profits? Which ultimately is what investing is all about – spotting the hidden opportunities and identifying the firms likely to generate revenues from the major shift moment AI (possibly) represents. I suspect AI is just a label – rather than a genuine new, new thing.

There is so much noise around AI… much of it warning about the dangers of missing the wave, but not so much about what it is we might forgo if we do. AI has become something of a FOMO game (Fear of Missing Out.)

I see very little real analysis of the potential socio-economic costs of AI – which generally are presented as enormous wins for efficiency by dint of replacing millions of skilled workers.. What happens to those displaced? If billions of displaced workers are left without disposable incomes, who is going to replace them in terms of consumption? What are the likely social costs – could the AI revolution simply deepen the “Great Divide” between the haves and have-nots across society? But enough of Blain’s inherent socialism this morning…

In terms of personal use of AI, I find myself wondering if I really want to buy the rumoured next generation Max-Pro with new, much hyped AI chip capabilities. (New crispier Frosties with extra crunch… they’re Grrrreat!) Apparently, new AI processor-equipped Lap-Tops and smart-phones will be required to enable full AI compatibility. Call me a cynic, but that sounds like a way to push product rather than a computing paradigm shift. I might just decide I don’t need AI in my phone, and will connect to Cloud based AI services.  And if mobile makers try to restrict access…. Is that the sound of a competition writ I hear?

Yesterday, Dell – yep, they are still around – proudly announced sales of its AI-optimised servers up 40% as founder Michael Dell hobnobbed on stage with Nvidia founder Jensen Huang, bragging about his new (and very expensive) AI PCs with “Snapdragon X NPUs”… whateva.. Marketing tush and nonsense perhaps… although someone is bound to tell me how terribly, terribly, important it all is…

Or maybe there are real use cases – like using AI to improve weather forecasting. My passion is sailing so I want to know what the weather is doing. I subscribe to Sailing weather apps – which, I guess, remain driven by supercomputing muscle power. Yet, anything that produces better weather is not necessarily a great thing. They may allow offshore sailors to better optimise their routing software packages to take advantage of predicted weather patterns – the more accurate the forecast is, the better such programmes work.

But knowing what the weather will do takes out the challenge, and much of the fun, out of sailing by removing experience and guess-work from the sport, while creating an “arms race” among those who can afford the latest expensive kit to win them races, rather than the best sailors. Often the best sailing days are the ones when the weather does everything it’s not supposed to! AI might make sailing quicker – but will not make it better.

I find myself somewhat perturbed by AI claims. There are clearly real businesses to be built, but my experience of playing around with Chat-GPT has been amusing at best, downright pointless at worst. If all I am doing is looking at learning models, then I’m bound to be disappointed – they are not intelligent, but they are “mechanically” sophisticated, compounding rules from what they have learnt to present all the data into presentable sound bites that sound clever. It’s very artificial and a facsimile of true intelligence. (To be fair… the Morning Porridge isn’t particularly intelligent either, simply the haverings of a gently-decaying banker who has survived into middle-age in the financial markers (a rare feat these days..)

I am sure there are good uses for AI in the Morning Porridge. I’m going to try to learn how to use AI to create illustrations of market trends – which a number of commentators already do exceptionally well. I don’t intend to ever let AI write the Porridge – other market Blogs are also available, and at least one very popular site boasts about how its AI scrapes the market for news and compiles it each morning into very focused market commentary. (Basically, it works out what the market is likely to read and feeds it to them. The Porridge is what I find myself writing about… dashed if I know what the market wants to hear!)

What is the reality for AI? Is it just another internet fad driving unsustainable gains in tech stocks – much like digitisation, the IoT (the internet of things, lest your forgot), or the Metaverse. Many decent businesses emerged from these themes, (ok, not the metaverse), but the successes were not the ones you might have expected – they are the ones which spotted how the new tech enables a new solution (often to old problems).

What concerns me most is the pursuit of AI possibilities over other investment probabilities. In the real world there are plenty of real smart and genuinely clever businesses to invest in.

For instance, at the moment my new venture Wind Shift Capital (yes, a sailing related name) is working on financing real assets in the real world in the private capital markets (Private Equity and Private Credit) through institutional investors. We have deals that create clear returns and flow:

• Investing in early-stage MedTech and accelerating them through licencing deals – clear upside potential.
• Lending short-term secured finance to UK property developers – solid returns and security.
• Developing Precision Fermentation infrastructure to create protein offtakes at commercial scale and cost – some risk, but clear agri and social benefits.
• Using multiple points of data (basically AI, but not calling it such) to spot opportunities in the US rental markets – clear need and diversification.
• Major UK industrial infrastructure in the “speciality shed” space – spotting a commercial opportunity and creating secure return upside.

Each of these deals offer diversification plus returns. They target markets with clear need, profitability and demand. They are not without risk – any investment is – but in today’s AI obsessed market I wish I was able to market them all as “AI-Enabled” or “based”.

The capacity to fool ourselves and jump all over bandwagons will never cease to amaze me. I try to think of this way: There is Stuff that is. There is Stuff that might be. And Stuff that simply isn’t.

Out of time and back to the day job…

Bill Blain

Author of The Morning Porridge

Wind Shift Capital

www.windshift.capital