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  • Writer's pictureXinyu (Shawn) He

Is the AI hype a bubble?

Updated: Jun 9, 2023


AI fund strategy at Statis Fund 93 percent ytd
AI fund strategy at Statis Fund performance YTD up 93%

In our Innotis strategy at Statis Fund, AI is an area of main focus for us, up 93% YTD, as we believe it to be a sector that will be significantly disruptive for society in the next decade. AI has become mainstream thanks to ChatGPT and OpenAI. Since the founder discussed in February that $MSFT and $NVDIA would be a two of the biggest winners in the AI race, they have surged 27% and 84% respectively as of June 2nd, 2023. While the growth of the AI sector has been truly explosive, and many analysts are calling this a bubble, here is how we at Statis Fund are looking at the future of the AI sector.


AI has a solid fundamental story and compelling narrative for growth. Unlike some of the past tech bubbles that were based on vague promises and unproven technologies, AI has a clear value proposition to either significantly reduce workload or greatly increase a company's output. AI enables companies to improve their efficiency, productivity, innovation, customer satisfaction and profitability signficantly more than most other technological revolutions we have seen. AI's adoption will be considered an industrial revolution for software, creating new opportunities for growth and value creation in both emerging and mature markets and domains.


AI will impact multiple sectors on every level, from the way products and services are created to the way consumers interact with them. Companies who embrace AI will definitively see an increase in their productivity and output, the question is how much. Companies will potentially increase output from workers by over 2-10x current levels by a modest estimate, or significantly increase savings due to needing a smaller workforce while still generating a greater economic output. Companies that fail to integrate and build out AI products and services into their solutions, work streams, and consumer-facing products, will get left behind. Therefore, the integration and buildout of AI products are services will continue to surge as demand and competitions rise between companies and consumers. We are only beginning to see companies create policies around AI within the last quarter. Those who are internally railing against the use of AI in their workforce will be left behind by companies who are embracing it and able to turn around products, content, and media up to 10x or more faster and in higher quality.


According to Pew Research, despite 58% of US adults having heard of ChatGPT, only 14% have tried to use it as of March 2023. This means there is significant growth potential as adoption grows. ChatGPT is just the beginning of the AI adoption as more and more products built around GPT4 and large language models (LLMs) become more and more integrated into everyday tools, enterprise-grade software, and company tools and products.


The AI market is still in its infancy, with many industries yet to fully adopt AI technologies despite it being discussed as if it is a mainstream tool. This suggests that the current growth in the AI market is not a bubble, but rather an indication of the sector's potential. The increasing demand for AI solutions across various sectors, such as healthcare, finance, retail, and more, indicates a sustainable growth trend. Furthermore, the continuous advancements in AI technologies and their potential to revolutionize various aspects of life and business suggest that the current growth is not merely hype.


Fundamentally, despite the unprecedented rise in valuations for companies in the AI sector, we see this as the beginning of the next internet, the industrial revolution, the invention of electricity, a new renaissance, and a completely new era with a complete paradigm shift. There will be winners and losers, but the AI boom is far from over. With our outlook, we find the reported AI CAGR of 20-40% to be extremely modest and will likely be a significant driver for the growth of the US economy, GDP, and markets for the next decade and beyond.


 

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