Navigating the hype surrounding a new technology is one of the trickier challenges we face as investors.
It’s not so much about spotting the affinity scams and over-promotional rubbish; you learn to identify those quickly, especially if you’ve been bitten before. Nor is it even about sensing a technology’s legitimate potential. Eventually, if you’re paying attention, you can get a decent sense of which way the wind is blowing.
The real trap is being generally right about the what, but hopelessly wrong about the when and the how.
A big part of that is captured in Amara’s Law, which states that we tend to overestimate the effect of a technology in the short run and underestimate it in the long run.
As I like to point out, much of the internet hype of the late ’90s wasn’t actually misplaced — it was just early. It also failed to imagine how, exactly, the web would manifest real-world value. Which is, essentially, how it always goes.
When electricity was the hot new thing over a century ago, power generation seemed to be where the money would be made. The dawn of commercial flight tempted investors into the airline business. And the World Wide Web was supposed to see Internet Service Providers (ISPs) become the titans of industry.
No. The real value accrued to the enterprises enabled by the technology. I suspect AI will follow this same trajectory.
I think Jeff Bezos has a good mental model here, describing AI not as a standalone product or a “killer app,” but as a horizontal enabling layer.
In the early days of the Industrial Revolution, running a factory required building your own steam engine or water wheel; power was a vertical specialty. Even when electricity arrived, a lack of transmission infrastructure meant power was still an in-house affair. But once utilities became networked, they enabled an explosion of industrial production and the creation of an entirely new category of consumer products. Electricity became a horizontal utility; a layer of infrastructure sitting underneath almost everything.
Bezos’s point is that AI is similar, a substrate that will eventually be woven into almost every business process, from healthcare diagnostics to heavy manufacturing.
If you accept this framework, the investment logic shifts quite a bit.
When a technology becomes ubiquitous and horizontal, the tech itself eventually becomes a commodity. And commodities are not usually great long-term investments. If the cost of AI compute follows the same path as the cost of a megabyte of data, the competitive advantage will not belong to the person selling the “brains.” Instead, it will go to the person who uses that cheap and abundant resource to reinvent an existing product or birth an entirely new one.
That’s not a fresh take by any means. The market has already moved well past the focus on chatbots and is rightly thinking about how businesses will integrate AI. Even so, there is still enough uncertainty in the market to afford us a bit of opportunity… if we can pick the ones that do it well.
And that is really key. It is no longer a question of whether a company will adopt AI in some way, shape, or form, because simply having the tools is not enough to win. As legacy media discovered the hard way, you need far more than just a website to win in a digital world. For the incumbents, adapting to the internet did not provide a competitive edge so much as it served as an existential necessity in the fight to remain relevant. The real value was instead captured by the social media giants, who leveraged the underlying technology to create entirely new categories that had never existed before.
It is still early days, but I imagine we will see a similar dynamic play out with AI.
So, I am not particularly interested in whether Woolies or CBA integrate AI into their business processes. I am sure they will, and I am sure it will make them more efficient. I am just less certain there will be a material and sustained competitive advantage in doing so. For me, the far more interesting thing will be seeing which companies use the tech to fundamentally rewrite their unit economics, solve problems that were previously untouchable, and create entirely new markets.
Those are the ones to watch.
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