Why We’re Still Early in the Race for AI Dominance

A product is emerging that is so powerful, it is already threatening trillion-dollar companies.

And almost no one is using it yet.

That’s the dynamic we saw play out this week.

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This week, Apple executive Eddy Cue testified in the Justice Department’s antitrust case against Google owner Alphabet. According to news reports, Cue testified that Apple is “actively looking at” adding AI as an alternative to search.

The reason why is in the numbers. Searches on Apple’s web browser Safari fell for the first time last month, he said. Cue said the decline was caused by users increasingly relying on AI, according to Bloomberg News. Google pays an estimated $20 billion annually to be the Safari default search engine.

On Wednesday, Alphabet shares closed down 8% on the news.

We’ve written plenty in the Digest about AI and why it’s going to be a major disruptor to every industry sector, including big tech.

But that’s only half the story this week.

You may have heard predictions about how AI will change the American workplace. In March, Microsoft founder Bill Gates predicted that advances in AI will render humans unnecessary for most things in the world.

But we’re not close to that … yet.

Recently, abundance of news stories and surveys make it clear that very few American workers are using AI.

A Pew Research survey published in February found that only about 16% of American workers are doing at least some of their jobs with AI.

Another 63% say they don’t use AI much or at all in their job; and 17% reported that they have not heard of AI use in the workplace.

What’s the takeaway?

We’re still very early in the AI megatrend … but the future is coming at you fast.

No Turning Back From the AI Revolution

Quotes like the one from Gates above make good headlines and often frighten people about the future.

But as the Pew Research survey shows, we’re nowhere near the point of mass adoption of AI tools.

Investors such as Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, have warned that an “AI bubble” will burst like the dot com bubble. Jeremy Grantham, co-founder of investment management firm GMO LLC, who famously predicted the dot-com bubble burst, has said it will likely “deflate.”

Those outcomes may happen. But one thing is certain…

The non-AI economy is disappearing.

You can either invest in it or be left behind.

Our own in-house investing legend Louis Navellier makes a similar point to his Growth Investor subscribers.

Story Continues

When ChatGPT launched, the AI tool could only answer questions based on its training data, which was up to September 2021. Plus, it had a bad habit of making up facts when it didn’t know the answer – what we now call AI “hallucinations.”

Regular Digest readers know that Louis is a classic “quant.” He uses data and high-speed computers to identify fundamentally superior stocks that have the institutional buying pressure to push them higher.

So, when he selects stocks in a megatrend, it’s based solely on data – not hunches or gut-feels.

A good example came this week with earnings announcements from AppLovin Corporation (APP).

If you don’t know the stock, APP targets the more than 1 billion people who play mobile games. Specifically, the company owns and operates an AI platform that provides advertising to mobile gamers.

The ads aren’t just for other games. Their AI platform is now expanding into broader industries such as e-commerce, fintech, healthcare and entertainment.

And they posted blowout earnings this week. Here’s Louis writing in Growth Investor:

Shares of AppLovin Corporation (APP) soared higher on Thursday after the company posted blowout earnings and revenue for its first quarter. Total revenue increased 40% year-over-year to $1.48 billion, besting estimates for $1.38 billion. Advertising revenue jumped 71% year-over-year to $1.16 billion

Click here to find out more about what Louis is calling the Economic Singularity.

AI Winners Beyond Tech Stocks

On Thursday, Bloomberg published a story about how the data centers that help power AI are increasingly in water-resource-scarce areas.

The data centers that help power AI need high volumes of water to cool hot servers, and, indirectly, to help generate the electricity needed to run the centers.

From the Bloomberg report:

Even before ChatGPT launched in late 2022, communities complained about data centers guzzling up millions of gallons of water every day from cities that didn’t have all that much to spare. The problem has only deepened in the years since ChatGPT kicked off an AI frenzy.

The story goes on to detail how data centers and tech firms are starting to deal with the problem while acknowledging that demand is only going to grow.

This trend offers an investing example beyond the obvious demand for more data centers.

All investors want to grow their wealth, but often, the most successful investors identify opportunities based on future economic needs that come to fruition.

For example, most investors are familiar with the story of Levi Strauss. During the California Gold Rush, it wasn’t most miners who grew wealthy—it was Strauss, who sold them the durable pants they needed to mine the gold.

In today’s AI boom, Eric isn’t chasing the most obvious chipmakers. He’s looking deeper—at the water flowing through the server farms—and not long ago, he made an important tech-adjacent call.

Eric noted in his New Manhattan Project report in Eric Fry’s Investment Report that water handling businesses have a tailwind based on this new technology, as well as in an old one.

Here is what he wrote about his pick, Aris Water Solutions Inc., (ARIS):

ARIS is an emerging leader in the water-handling business for the oil & gas industry. As I detailed in the October issue of Fry’s Investment Report, Aris has developed an extensive water infrastructure in the Delaware Basin of West Texas.

This is a great illustration of the global macro investing perspective Eric has. He leans on the world’s megatrends, but his focus is narrow. It’s not enough to simply say “invest in AI.” Eric considers all the economic/investment ripples originating from the trend.

ARIS is up 25% since Eric picked it in October, even amid the market volatility.A graph showing the number of solutions AI-generated content may be incorrect.

Eric believes that, like the Manhattan Project, the AI race is a high-stakes competition to develop a powerful technology of weaponization. And, like the Space Race, it’s also a race to control a limitless frontier.

Here’s Eric describing the stakes.

The stakes could not be higher. AI is a technology that has the potential to create, or destroy, on a scale that humanity has never before encountered. That’s why the U.S. will be pursuing an all-hands-on-deck strategy to master AI’s capabilities before anyone else does.

You can learn more about Eric’s stocks for the New Manhattan Project by clicking here.

AI isn’t everywhere yet, but adoption rates are rising.

Savvy investors will want to get in early to ensure they can maximize their returns and not get caught flat-footed when mass adoption occurs.

Enjoy your weekend.

Luis Hernandez

Editor in Chief, InvestorPlace

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