My latest thoughts on artificial intelligence (part 1)
Artificial intelligence ("AI") has been in the news more than usual the past couple of days...
There has been a kerfuffle over whether ChatGPT creator OpenAI is asking the U.S. government for a "backstop" – a word used by Chief Financial Officer Sarah Friar – for its $1.3 trillion expansion plans.
Friar quickly walked back her comment on LinkedIn, as did CEO Sam Altman in a long post on social platform X.
However, this document OpenAI submitted a week ago – which advocates for federal loan guarantees – indicates otherwise. Let's hope the government quickly rejects this outrageous overreach.
I don't consider myself an expert on AI. But I've been trying my best to learn about it and keep up with the latest developments because a) I'm convinced that it's as important and revolutionary as the Internet, b) it's driving so much of our economy and stock market, and c) I'm amazed by what it can do.
A simple example: For my birthday last Saturday, one of my friends sent me two six-second video clips that he generated in less than one minute using the Grok Imagine AI Platform. He simply uploaded this picture:
He then told the AI to convert it into video clips. (For the first clip, he gave no instructions, and for the second, he clicked the "fun" option.) You can see the results here.
If I hadn't told you the clips were AI, you might think they were real, right?
AI is amazing. I use it constantly... and almost never.
What do I mean by that?
Well, I do web searches many times a day using Google – just as I've always done. But now the results are much better. That's because the top of the results page shows summarized information from Google's AI assistant, Gemini.
Here's a screenshot that I'm sure looks familiar to most of us who use Google:
To me, it doesn't feel like I'm using AI, since I'm using Google just as I always have – there just happens to be a new feature in the system.
In contrast, I subscribed to ChatGPT roughly a year ago for $20 per month, but I almost never use it. If it weren't so cheap, I'd probably cancel my subscription.
If my experience is typical (and I suspect it is), I think there are two major implications...
First, Google is going to continue to dominate web searches. That's why I continue to be bullish on parent company Alphabet (GOOGL), as I discussed most recently on October 30.
Second, the average person is probably not willing to pay a lot of money for AI, so services like ChatGPT, Grok, Claude, etc. will need to find business customers who will.
Some of the largest companies in the world are betting on this. Alphabet, Microsoft (MSFT), Amazon (AMZN), and Meta Platforms (META) are investing massive sums in AI. Take a look at these Bloomberg charts shared on social platform X, which show the explosion in their capital expenditure ("capex") spending:
At first glance, such spending appears to be wildly excessive. But keep in mind that these four companies – and the U.S. tech sector overall – generate gobs of free cash flow ("FCF").
Across the sector, capex as a percentage of FCF is much lower than it was at the peak of the Internet bubble a quarter century ago:
The level of spending as a percentage of GDP is also modest relative to other tech build-out booms:
Another reason the current boom is different from the telecom one in the late 1990s is that the infrastructure today – mainly consisting of Nvidia (NVDA) chips – is "fully utilized," as market strategist Shay Boloor explains:
Here's my friend and former colleague Enrique Abeyta's response to this:
So will businesses pay up for AI, warranting the massive amounts – trending toward trillions of dollars in the coming years – being spent on it?
The answer will largely depend on the extent to which AI can replace humans. In other words, if businesses can use AI to reduce headcount – or grow without having to increase headcount – then they will pay a lot of money for AI.
I'll explore this question and the impact of AI on the job market on Monday, so stay tuned!
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Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. I'm normally too cheap to buy professional photos, but I liked these five from the New York City Marathon enough to drop $70 on them:
