Another day, another newsletter about artificial intelligence.
As my colleague Julie Hyman wrote yesterday, the market's obsession with anything "AI" is starting to feel a little 2017, the year when anyone and everyone began tacking "blockchain technology" onto an idea.
The speed of the infatuation with AI, chatbots, and all associated "innovations" has been stunning.
On Tuesday, the New York Times published a story on the efforts being undertaken by Meta Platforms (META) to avoid falling behind in the race to integrate AI tools into literally any business idea. The lede brings us way back to a critical moment for the company two weeks before Open AI's ChatGPT went live online... in November 2022. Also known as about three months ago.
On Monday, Alphabet (GOOGL) announced its new chatbot, named Bard.
On Tuesday, Microsoft (MSFT) announced a new version of its Bing search engine, Edge, which will run a more powerful version of ChatGPT.
As Big Tech continues sorting through its decision to over-hire during an over-hyped "future of work" phase after the pandemic, it seems AI projects are a sure way to lock in a growing budget for 2023.
In the stock market, it has become table stakes that something strange is happening in the stock market because of some hyped announcement around artificial intelligence.
Leading the charge for speculative investor bets on AI capabilities are stocks like SoundHound AI (SOUN) and c3.ai (AI), which have both roughly doubled this year.
And we surely cannot be more than a few weeks away until a certain movie theater operator begins bragging about its AI investments.
On the flip side, we find names like Chegg (CHGG), the online education platform, defending its market position against the threat of chatbots that, in the grandest vision for these new technologies, could render doing something as old-fashioned as taking a class to learn something obsolete.
Hype cycles in culture, investing, and elsewhere are not a new phenomenon. And when the interest in chatbots and AI and today's Current Thing inevitably fades away, something else will take its place.
And while there are timeless influences underwriting the current infatuation with AI, a more modern development also helps us situate this current mania.
Speaking on Bloomberg's Odd Lots podcast earlier this week, Steve Eisman of "The Big Short" fame — some readers may be more familiar with Steve Carell's work playing a version of Eisman in the 2015 movie — outlined what he calls the "Amazon disease."
And we think this offers a great heuristic for understanding the basis for so many of the market's recent bull cases that overhyped flawed business models. Winning small portions of big markets has been the consensus framework for investing in high growth businesses.
"What I mean by the Amazon disease is when Amazon came public, there was a lot of skepticism that this would work, and Amazon has basically conquered the world," Eisman said. "And so people are always looking for the next Amazon when the sell side writes a research report. And the first sentence is, 'The TAM is huge,' which means the total [addressable] market is huge."
Eisman flags Opendoor (OPEN), a de-SPAC that came public via Chamath Palihapitiya's Social Capital Hedosophia II in 2020, as a recent example.
As Eisman said, "There's no question that housing is huge."
"So you look at Opendoor and you say, well, the housing market in the United States is, I don't know, a trillion to whatever it is, a $2 trillion [market]," Eisman said. "If Opendoor only gets 1% of that market, the stock is huge."
I remember an investment banker telling me during the 2019 mini-IPO boom that saw companies like Uber (UBER), Lyft (LYFT), Zoom (ZM), and Peloton (PTON) go public that all you do is pick the companies with the biggest TAMs — or total addressable market — and bet on those.
Take this logic a step further back, and we find a dynamic that often shapes which companies in which sectors end up being most enthusiastically funded by the venture community.
So while the recent hype around ChatGPT, AI, and associated variants of algorithmically-enhanced task completion may appear to have blossomed from nowhere fast, there are longer-run, investment culture forces at play.
And like so many dynamics in the modern business world, they lead back to wanting to be like Jeff Bezos.
What to Watch Today
Economy
- 7:00 a.m. ET: MBA Mortgage Applications, week ended Feb. 3 (-9.0% during prior week)
- 10:00 a.m. ET: Wholesale Inventories, month-over-month, November Final (0.1% expected, 0.1% during previous month)
- 10:00 a.m. ET: Wholesale Trade Sales, month-over-month, November (-0.2% expected, -0.6% during prior month)
Earnings
- Affirm (AFRM), AllianceBernstein (AB), CME Group (CME), Coty (COTY), CVS Health (CVS), Dominion Energy (D), Equifax (EFX), Fox Corporation (FOXA), Goodyear Tire (GT), Hillenbrand (HI), Mattel (MAT), MGM Resorts (MGM), New York Times (NYT), Penske Auto (PAG), Robinhood Markets (HOOD), Sonos (SONO), Tenet Healthcare (THC), Uber Technologies (UBER), Walt Disney (DIS), XPO (XPO), Yum! Brands (YUM)
