Not All AI Is Created Equally. Valuations Should Reflect This Reality.
To my thinking the AI bubble of the past couple of years is Gen AI-driven. The AI bubble isn’t about machine learning, deep learning, image recognition or natural language processing (although Gen AI is sort of NLP on steroids), all of which have been around for many years. The AI bubble stands squarely on the shoulders of Gen AI, which has yet to turn into meaningful revenue at the application layer. Only those companies that are providing the LLM building blocks - primarily Nvidia (NVDA) and OpenAI (private) - have generated significant Gen AI-related revenue. Therefore, why reward a broader group of stocks?
Therefore, why is Oracle (ORCL) being rewarded? Oracle doesn’t have Gen AI IP, which is why it partners with Cohere (private). Do investors believe that in a down economy, ORCL will see revenue growth accelerate over the next two years as Oracle forecasts below?
Source: Oracle Investor Day September 12th 2024. Microsoft (MSFT) is similar to Oracle in that MSFT doesn’t really have its own
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