Ark Invest: Don’t Put All Your Eggs in the Nvidia Basket

Author: Brett Winton, Chief Futurologist at Ark Invest

Nvidia’s stock surge has prompted many investors to focus their AI business on a tight market, and the stock sell-off on Monday, June 24 — which saw the company’s shares fall 16% — is a reminder that AI is about more than just a few tech stocks.

Like many students, the OpenAI tech pioneer evaluated and refined his approach after failing the U.S. Bar exam last year. When he returned for a retake a few months later, his AI GPT platform not only passed, but beat 90% of lawyers who took the exam.

It will likely take some time for legal representation from a robot to emerge, but OpenAI’s success shows that the rules about the pace and scale of AI development can be left at the door.

This makes it difficult for experts to make predictions. However, despite regular revisions, their conclusion is always the same – AI is revolutionizing the global economy, and doing so very quickly.

As it becomes more sophisticated, technology is automating more and more tasks for knowledge workers around the world. It is increasing their productivity many times over. By the end of the decade, we expect AI software to address a market worth about $13 trillion.

Early adopters are already making waves by investing in AI names that dominate the U.S. market. Nvidia recently became the world’s most valuable company. But a few days later (June 24)^t) the company relinquished the spot as a sell-off in shares caused the price to drop 16%, wiping out $550 billion in market capitalization overnight.

While some ground was regained the next day, this is a reminder that to fully grasp the scale of AI’s evolution, investors need to extend their reach beyond hardware stocks to the entire supply chain.

The Rapid Revolution in Artificial Intelligence

AI’s rapid growth began two years ago with the public launch of Chat GPT. OpenAI’s flagship chatbot marked a watershed moment for everyday users, allowing them to explore the true capabilities of AI using natural language for the first time.

Fast forward to the present: ChatGPT has surpassed 200 million users and over 80% of companies are implementing AI.

A side effect of this explosive adoption is that the cost of training an AI model is falling by about 50% every six months. That’s about four times faster than the rate dictated by Moore’s Law—the relationship between technological progress and falling prices.

That’s why things are progressing at a pace that amazes even the experts.

When OpenAI first announced GPT-3, the consensus was that it would take 80 years before there was an AI system that equaled or surpassed human intelligence.

That period shrank to 18 years when ChatGPT launched. Today, experts believe robots will start to become smarter than us by 2030 or sooner.

Using productivity

The development of artificial intelligence brings the greatest benefits in the area of ​​productivity of knowledge workers – people whose work is based on critical thinking and problem-solving.

We’re already seeing this. Developers coding on Github’s Copilot AI platform are more than twice as productive as those who aren’t. But this growth is becoming more pronounced and widespread, in line with AI sophistication. By 2030, we expect to see a fivefold increase in productivity for all knowledge workers.

That’s a lot of added value in the economy. And the market opportunity for investors lies in the software that enables that productivity to emerge.

These companies typically capture about 10% of the value they create for the end-user companies that buy their solutions. Based on this, we predict that the addressable market for AI solutions will add $13 trillion in productivity by 2030. This will grow to $26 trillion if they can capture 20% of the backend.

Regardless, that’s a huge pool of capital that AI companies can capitalize on. The problem is that investors are currently focused largely on companies like Nvidia and Taiwan Semiconductor, which design and manufacture integrated circuits.

Given their absence from overly concentrated, top-tier indexes like the S&P 500, companies further along the AI ​​software supply chain don’t get the same attention. Yet these are the names we expect to generate the biggest gains of all as AI reaches its final peak in the coming years.

Take Teradyne, which controls 60% of the growing chip testing market. Similarly, Palantir is consolidating the data and analytics integration market for large organizations and governments integrating AI.

Meanwhile, Kratos Solutions is a pioneer in groundbreaking mobile technologies that are transforming the defense and security sector around the world.

These are just a few examples, and there are many more. The point is that AI will increase productivity and create disruption on an unimaginable scale in the coming years.

This is a once-in-a-generation opportunity that investors can take advantage of by diversifying their exposure rather than investing in a small handful of stocks currently dominating headlines.