This Decade's Biggest Trend

No new trades this week - enjoy this essay I wrote last month

Merry Christmas and Happy Holidays to everyone.

I don’t see any new episodic pivots to invest in this week. The weeks around the holidays are typically light on news. So it’s been challenging to find an episode to justify a sustainable move higher for an individual security.

The market has also been nearly straight up the past two months. Eventually it will take a breather. So it’s prudent to have a cash position and let our open positions continue to run higher.

But not to leave you all high and dry, I’m going to share with what I believe will be the biggest trend this coming decade. Let me know what you think in the comments below. Thanks.

How to 10x Your Money in this Decade’s Biggest Investment Trend

“Crap, I gotta go!” My coworker Sam jumped up, sent his chair clattering in the food court and sprinted towards the office clutching his Blackberry.

We picked up his chair and brought him his food when we finished. That’s when we found out that an important filing didn’t get processed. And if that filing hadn’t gotten in immediately, that would have been catastrophic for the client. They would have fired us as their auditors and in turn, he likely would have been canned.

I remember this vividly. It was late 2007 and this was my first job out of college at a big 4 accounting firm. We were encouraged to get a smartphone, but I and several others resisted. We didn’t want to be permanently tethered to our work.

But after seeing how it saved Sam, all the holdouts had a smartphone a week later.

That moment was when I knew that smartphones and the ability to have the internet in our pocket would be a major trend in the coming years. I didn’t have much money at the time, but I purchased a few Apple and Google shares shortly after that.

Now I sold these shares WAY to soon… Despite having conviction in the investment, I was too young to be patient and slowly watch these shares increase in value. I have since vowed to not make the same mistake when the next major technology shift occurs.

And that next major technology has arrived – and it’s time to make our investments in companies with the potential to 10x over the next 10 years.

A New Megatrend in the Making

In 2007, it was still early for the smartphone market. Most people didn’t see why you’d need to carry the internet with you. They’d say things like, “It was nice to disconnect” and “Who needs to check their email 24 hours a day?” But it was this disbelief that made it a great opportunity.

To be fair, these smartphones were quite limited at the time. The iPhone 3G – Apple’s first hit smartphone – wasn’t released until July 2008. And games like Angry Birds didn’t come out until 2009. And it was too early for Facebook’s mobile app. The phones had a small LED display and a physical keyboard with tiny buttons that was hard to use.

But it was clear that in the coming years, these phones would get more useful. And everyone who got one felt like they’d never go back to an analog phone. People liked being connected at all times and able to scroll through the emails while waiting in line at the stores. This kicked off the biggest investment trend of the 2010s – mobile internet.

From their bottoms in 2008/09, Apple and Google rose 8,000% and 2,000% respectively. And Facebook is up 800% since it’s 2012 IPO. And other companies like Qualcomm, Uber, and Amazon rose many multiples riding this trend higher.

For the biggest gains, sometimes you need to step back from the day to day and think about what will proliferate over the coming decade. Back then it was clear mobile would be the winner.

And right now, we have the opportunity to invest in the next big trend over the coming decade. It’s probably not surprising to anyone reading this, that this trend is artificial intelligence (AI).

For the First Time Everyone Can See AI in Action

AI isn’t anything new. It’s been around in some form since the 1950s. But before ChatGPT came out in late 2022, only the nerdiest of computer scientists could utilize this technology.

But when ChatGPT released its large language model (LLM) to the public, finally everyone could begin using AI.

This is the equivalent to the release of Blackberrys and iPhones. Prior to that only a few tech geeks had a portable device to access the internet. But these new smartphones allowed the masses to be able to access this technology. That directly led to these new mobile services being built on this new kind of device.

LLMs are the equivalent to the iPhone release.

Now, I use AI almost every day. I use it to help summarize long articles and YouTube videos, interpret dense research papers, find historical parallels for ledes, and research companies and economic trends. AI makes me a much more productive analyst.

Many others feel the same way. AI increases productivity of computer programmers by 126%. Other studies found that customer support agents could handle 14% more customer inquiries per hour with AI. And business professionals could write 59% more business documents with AI.

AI also helped me find these stats.

If you and your teams aren’t actively looking for ways to incorporate AI into daily workflows, you will lose out to those who do. Utilizing AI will become table stakes for businesses to compete in the coming years. Those who don’t have it won’t even be allowed to sit at the table and have a chance at building a profitable business.

So the question is how do we profit from this emerging trend. What are the trends within AI that we can profit from.

The First Wave Is Already Over

The first wave of AI profits is mostly behind us. Nvidia’s (NVDA) graphics processing units (GPUs) are the best for the parallel processing needed to run AI. But its revenue as reported last week increased 200% from this time last year. And they’ve already grown to a trillion-dollar company.

Now NVDA may well be a fine investment in the coming years, but it’s unlikely that it will outperform the market by much at this size.

The same goes for Microsoft and Google. They’ve jumped out to a quick lead in AI technology. With Microsoft backing OpenAI (the company behind ChatGPT) and Google having perhaps the most advanced AI division among major tech companies. But these are trillion-dollar companies. They just aren’t going to grow much faster than the market.

And I’m not excited about companies incorporating AI into their software offerings. For instance, I recently heard the average ChatGPT user uses $80 of data per month to run their queries. But OpenAI only charges $20 per month for paid users. They are losing a lot of money right now. I’m sure when the 2023 numbers come out, we’ll see a multi-billion-dollar loss.

So I’m not excited about Salesforce (CRM) or Adobe (ADBE) right now either. Salesforce was late to the AI game and is playing catchup with its Einstein offering. And Adobe has a generative art platform, but AI is enabling its competitors to make free offerings of its flagship Photoshop program. Many designers are using Canva’s free offerings to do what they used to do in Photoshop.

LLMs will make the dominant coding language in the future shift from C++, Python, and JavaScript to English (and other natural languages). This will enable anyone to make software applications.

I’ve written before how I think AI could eventually lead to the death of SaaS (Software-as-a-Service which was the major business strategy software companies adopted the past decade).

These were beneficiaries of the first wave of AI investment. We want to look forward.

 The Thing That Fuels AI

That thing is data. Data fuels AI. Without data, AI models could not be trained and they’d have no data to interpret.

Over the next 10 years, I see GPUs for processing AI applications will become commoditized. Competition is increasing already and soon we will see chips developed by all major tech companies compete against each other. Prices and profit margins will fall.

But the one thing that will still be valuable, is the data collected to train models.

The Economist even went as far as to say that data is the new oil. I agree. Data will fuel the AI paradigm.

Now I wish it were as easy as just buying companies that produce hard disk drives. But for AI applications, just thinking about hard drives is not very helpful. For the data to by useful, it must be factually correct, easily accessible, and easy to process.

I’ve seen some studies showing that the expensive GPUs sit idle 25% - 50% of the time because they are waiting for the data they requested to arrive. That’s a lot of time for those $10,000+ GPUs to not be doing any work.

We need solutions that make data more accessible. And then solutions to make sense of that data.

The first company to help with data storage is Snowflake (SNOW). This company’s data lakes and warehouses are an innovative way for organizations to compile data from the hundreds of applications they use and make it easily accessible for data scientists and AI algos.

I also like that Snowflake charges users based upon the amount of data they store and then have to access. This pay as you go model is great for both the customer and the company. With many other data storage services, companies have to agree to buy a certain amount of storage and compute. This leads to overprovisioning resources and paying for unused capacity.

And charging by the amount of data all but ensures that Snowflake will make a lot more money in the coming years as AI requires more data.

The second company is Palantir (PLTR). Its Gotham and Foundry products break down massive amounts of data to make them useful. It’s great at identifying patterns hidden deep in datasets – this is why government intelligence agencies are among their biggest customers.

It’s possible for companies to connect their Palantir Foundry system to Snowflake’s data lakes. From their Palantir can provide advanced data analytics and insights from the millions or billions of data point they collect. And that will make sure the most important data points are the only data points a company will train their AI on.

Another aspect of data that’s vitally important is to make sure the data is up-to-date and accurate. Without accurate data, an AI can’t achieve its goals. And the data will be even more valuable if a company can provide a unique data set that no one else can.

One company with a unique data set that can’t be replicated is ZoomInfo (ZI). Don’t confuse this with Zoom Video (ZM) which we use for Zoom chats. ZI is a completely different business. It has the largest business-to-business (B2B) database in the world. And its clients allow ZI to share the contact info they collect with others. This crowdsourced data is the largest and freshest of any database in the world.

And there is even a feature that shows which contacts are searching for what kind of products. This information helps sales teams target potentially warm leads.

Sales & marketing teams have taken to AI the fastest. They use AI to write marketing emails, generate online content, interpret marketing data, training, etc…

But without the most up-to-date data, these marketing efforts could be in vain. The average person stays at a job on average of 4 years. That means every year 25% of your contact list goes stale. And if you buy a list that’s been compiled over the past 2 years, statistically nearly half the contacts will have changed jobs.

That means the AI-assisted marketing and sales efforts will get sent to stale email addresses. The work will be wasted. That’s why ZoomInfo’s database is so important.

And once companies start using this database, they often keep paying. And of those companies who stop using ZI, many come back after a year because their marketing efforts show declining results.

Hold These For the Next 10 Years

These companies are not “cheap” by any means. They trade at historically high valuations. But often the leading companies never get cheap. They stay expensive as investors look forward to the future. So even as I’m skeptical of the market direction today, I believe if you hold these three stocks for the next decade, you’ll end up 10x’ing your money.

Data is one of the biggest trends inside of AI. And the companies that are integral in generating, storing, and using data will thrive.

Don’t make the same mistake I made 15 years ago and sell out of these companies too soon. These companies and others like them will be big winners.