Artificial intelligence has become 2023’s hottest investment trend. Investors are scanning the landscape for innovative companies, many of which are small and unprofitable. But the fact is, large, dominant technology companies are poised to get most of the AI pie.
Companies including Amazon.com
have been using AI-based tools for years. They’re now ramping up their AI products and services to grab market share among enterprise customers.
Together they will spend tens of billions of dollars on building out their offerings, which will, in turn, propel semiconductor company revenues. Exhibit No. 1 is Nvidia
On May 24, Nvidia, the largest maker of AI chips, said a surge in demand prompted the company to predict sales would rocket 53% in the three months through July from the previous quarter, sending the stock up 22% in after-hours trading.
Nvidia is the obvious winner in the AI frenzy. The stock gained more than $250 billion in market cap following the company’s massive guide. While its P/E ratio now sits above 200 on a trailing 12-month basis and over 50 on a forward basis, there is still room for growth — but it may be worth pausing as the company has seen its share price more than triple from its 2022 lows.
Having said all of this, Nvidia’s announcement puts an exclamation point on the opportunity for silicon providers to be massive beneficiaries of the race to build enterprise AI — and Nvidia currently is the biggest beneficiary.
AI may contribute as much as $15.7 trillion to the global economy within seven years, representing the largest megatrend, according to consultant PwC Global. With so much money up for grabs, here are the likely winners:
1. IBM: IBM
is known for having rebooted its main business line several times since it dominated mainframes during the 1960s. And now, the 112-year-old company just launched Watsonx, a milestone in the advancement of enterprise AI. Built on the Red Hat OpenShift platform, Watsonx offers a full tech stack for training, deploying and supporting AI across any company’s cloud system.
IBM’s Watsonx.ai tool features a model library that can be used for a variety of purposes, such as auto-generating code through a natural language interface, planning for a natural disaster or developing industry-specific use cases that can be easily customized. Essentially it’s a toolkit that enterprises can use to build AI capabilities according to their specific requirements.
A differentiator is a component called Watsonx.governance, which enables transparent AI by keeping data and workflows “explainable.” That’s crucial because in an era of rapid AI innovation, it’s important that companies know what the AI is doing to manage bias and keep models from drifting away from intended uses.
2. ServiceNow: ServiceNow
started as a one-person shop less than 20 years ago and has ballooned to a market value of $100 billion, posting the fastest growth of any enterprise-software company. ServiceNow started as an IT-service-management company, then as a provider of technology that optimizes customer and employee experiences and now, potentially, the biggest prize of them all: artificial intelligence.
ServiceNow, which has acquired 11 AI-related companies since 2017, is injecting Gen AI technology into all workflow software. That means, for example, a company will benefit from the faster resolution of employee requests. Or a designer’s workflows are speeded up by text-to-code capabilities. Your morning coffee order might be processed by a bot, but its language will seem hyper-real.
ServiceNow and Nvidia on May 17 announced a partnership to develop enterprise-level Gen AI capabilities that can accelerate workflow automation. That will help ServiceNow make more efficient ERP (enterprise resource planning) systems, the most popular of which are run by Oracle and SAP
That’s just one more area of growth for ServiceNow.
3. Oracle: Oracle’s
Cloud AI offers pre-trained models that can be customized with a company’s own data, thereby making it easier for them to adopt and use AI technology.
Oracle’s ace in the hole is that it hosts massive company databases in its cloud. So as customers tap into their data, Oracle is there to sell them AI and machine-learning services, which spit out models and predictions. Unlike Alphabet and Microsoft, Oracle has no consumer-oriented Gen AI applications. The primary focus is luring companies with the lowest-cost infrastructure and tooling.
Co-founder Larry Ellison said on the company’s earnings call in March that demand is outstripping available capacity. A difference among competitors, he said, is that Oracle has setups built around Nvidia (NVDA) chips that are part of a standard network and can be applied almost immediately. There’s no need for customization.
What’s often overlooked is that Oracle is the world’s fastest-growing cloud provider, beating Alphabet’s Google Cloud at No. 2. As AI grows, along with the need for cloud computing, Oracle will benefit from a natural tailwind.
4. Alphabet: Alphabet has the deepest investment and longest history of investing in AI and Gen AI. A big boost came in 2014, when Alphabet acquired DeepMind, which created a neural network that learned how to play video games in a similar way to that of humans.
What’s unusual about DeepMind is that its system learns from experience without being preprogrammed. As a result of this “deep learning,” it can be employed in almost anything — from forming text-to-speech apps to modeling soccer player behavior. The applications are virtually limitless.
Elsewhere, Alphabet has been widely using AI in consumer products, including search, YouTube and Android. And that’s set to accelerate.
As for enterprise, Alphabet has more AI infrastructure options for cloud customers than its competitors do. That’s a result of Alphabet habitually releasing products — hundreds over the years — and seeing what works. That kind of beta-testing leads to home runs.
A place where AI will be widely deployed at Alphabet is Google Workspace, which provides collaboration tools such as Meet and Sheets. This opens the door to high-volume enterprise use. Like ServiceNow, Alphabet is expected to make big gains in both enabling and smoothing workflows.
Read: Why Alphabet is a better bet than Meta Platforms if you’re investing in AI
5. Amazon.com: Amazon’s ambitions in artificial intelligence are centered on B2B (business-to-business) applications at its cloud-based Amazon Web Services unit. The company has been using machine learning for the better part of two decades, so it’s well-versed in the language of AI.
The biggest news about AI from Amazon came in April, when it introduced Amazon Bedrock, which helps customers build Gen AI applications. This and other new services can be integrated into AWS seamlessly to help customers accelerate workloads.
That’s an advantage for Amazon, as it’s the largest cloud IaaS (infrastructure as a service) provider, meaning users can tap into a vast array of services without having to purchase expensive hardware. What’s more, the company’s pay-as-you-go model opens services to virtually any company, large or small.
Amazon has formidable competitors in this space — including Microsoft, Alphabet and Oracle. But two things stand out about Amazon: It usually delivers on promises, and it focuses relentlessly on customer needs. As AI adoption accelerates, Amazon will be hard to beat.
6. Microsoft: OpenAI blew up in the media last November when it introduced ChatGPT, a scarily advanced AI-powered chatbot, to the masses. That will be remembered as the starting gun for the real AI race, even though artificial intelligence has been deployed in different iterations for decades.
As a result, Microsoft, which effectively controls OpenAI via a multiyear, multibillion-dollar investment, gains first-mover advantage. The software giant is now integrating generative AI into as many software products as possible.
On May 23, CEO Satya Nadella unveiled a host of AI updates at Microsoft Build 2023, its developer conference. In fact, the event was all about AI — from integrating artificial intelligence with Windows, Bing and developer tools. Note that many of the offerings were still in “preview” mode.
As for Azure, its cloud platform, Microsoft is trying to catch Alphabet, which got a head start. Microsoft is updating Azure AI offerings, including the ability of companies to combine OpenAI with their data. Microsoft is attempting to entice companies to build custom models using its cloud-hosted tooling, keeping them attached at the hip. That was Microsoft’s approach with Windows in 1985 — land and expand. The company is hoping what worked then will work now.
Daniel Newman is the CEO and chief analyst at The Futurum Group, which provides or has provided research, analysis, advising or consulting to ServiceNow, NVIDIA, Microsoft, Amazon, IBM, Oracle and other technology companies. Neither he nor the firm have any positions in any of the other companies cited. Follow him on Twitter @danielnewmanUV.
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