Playing the “AI Revolution” intelligently is more than just trading Palantir and Nvidia. And it’s not about winner-take-all narratives or linearly extrapolation the past 2 years to infinity.
At a higher level it’s about thinking and understanding how AI technology pervades across the global economy and reshapes business sectors and models from the ground up.
Understanding where value is being created and destroyed across this stack (and beyond it) is what investors need to survive and prosper through the most important technological transition since the internet.
Note that “pre-AI” we consider the time before Chat GPT, and “post-AI” the era after Chat GPT was launched.
Market participants schooled in pre-AI thinking are fragile to paradigm shifts, simply due to the way their investing brains were wired all those years — and they are prone to fall into value traps and foster false expectations.
This reality is further complicated by the fact that the effects of the proliferation of AI tech has yet to show its full effect. Think of it like the Archetypical Life Cycle — it has four phases, and AI Tech is definitely away from maturing..
Having said this, the market (at least in spots) may have seen the “full effect” of AI’s Hype Cycle. I say this loosely, focusing on how far valuations have come for certain players.
That doesn’t have to be a bad thing if you know how to bet on Hype or have profited from it handsomely. But no matter where you stand, it’s important to have a big picture view of the whole board and a view of where things could be going from here.
Without further ado, let’s jump straight in…
The Four-Layer Stack
The AI tech stack has four distinct layers — each with different economics, competitive dynamics, and investment characteristics. Now understand that each layer needs the other ones to achieve an objective, we will go into that later.