The AI Gold Rush is Alive
During the Californian Gold Rush in the early to mid 1850s, there was huge migration of prospectors seeking their fortunes mining and tinning for Gold. You just had to hitch your wagon, head west and your wealth was assured. Sadly for many this was not the case, many died on the trails or faced a tough life of poverty.
When I look at the surge of interest in AI, I see a similar migration, but this time it is of labor. Various technology subsector employees are moving into AI and new projects are raising funds from hungry Venture Capitalists, who may have come late to add exposure to the space.
There is liquidity in the AI Sector, in the last two quarters of earnings calls, a CEO or CFO only had to say that they were exploring use cases for AI within their business for their share price to inflate after hours or pre open.
An example of this liquidity is CoreWeave raising $1.1BN last week in a Series C round which valued the business at $19BN (triple its last valuation, only 5 months ago). There has been plenty written about CoreWeave and how they have bought NVIDIA chips funded with debt from Blackrock (NVIDIA investor) and NVIDIA themselves. They have been buying so many NVIDIA chips that it was a sizeable difference in earnings 6 months ago. This makes me very nervous, because when you peel back the layers of CoreWeave you find a couple of energy commodity traders and failed Ethereum Blockchain miners. There doesn’t seem to be any substance to them that I can see from their Virtual Office in New Jersey.
WALL STREET JOURNAL - COREWEAVE SERIES C
So there is liquidity and this liquidity will draw more and more people and investors into the space, much like the Californian Gold Rush. There is a mania of sorts underway, one that I don’t think will end any time soon. Investors are largely under exposed to the subsector. Supply of AI investment opportunities is lower than Demand for such investments, driving valuations higher and higher. It will turn Seed Round valuations from $5.0m to $10.0m+ and perhaps drive other subsector values up to, all you have to do is say you are adopting AI in your product roadmap and you are away.
Its important to remember though, that just like the Gold Rush of the 1850s, it is not the Gold Miners and Prospectors that made money. No, instead it was the companies that sold the Miner the shovel, the pans, the denim trousers. What we are likely to see is a land grab for data storage and cloud computing on the tail of this semi-conductor revolution as more and more language model need server space.
So who will be the big winners? Of course the AI space will have big winners and investors will make returns, but there seems a higher % chance that late comers will miss out and lose money chasing gains that will be absorbed by the likes of Amazon (up 79.6% TTM), Microsoft (up 33.3% TTM) and Google (up 59.8% TTM).