Artificial intelligence is a topic generating both excitement and fear across the world. The potential of this technology is extraordinary and has been a game-changer for tech stocks, the reason behind their resurgence earlier this year. But will it be a flash in the pan? And if it’s here for the long run, who will be the winners and losers?
Bobby Yazdani, founder and partner for Cota Capital, is known for picking early winners in the tech space. Alphabet (NASDAQ: GOOGL) and Uber (NYSE: UBER) are just two of his early investments. But he also has a deep understanding of the tech sector and even wrote the software code for the Masimo pulse oximeters used in hospitals.
Prominent examples of inclusive technology he cited include the Internet and artificial intelligence (AI). Yazdani also emphasised that technology not adopted into the mainstream rarely becomes hugely successful.
“Technologies that are inclusive tend to win. Technologies that are exclusive tend to die fast," said Yazdani.
"Any technologies that are for the elite don’t become standards and don’t win."
The venture capitalist told attendees at Livewire Livewire 2023 on Tuesday that we are in the next super-cycle for innovation and it’s going to be shorter than the 10-year cycles of the past. How does he know? This is the fourth cycle he’s seen in his career and he follows the movement of experts in the field.
Close to 2000 new AI companies have been created in the San Francisco Bay area since the beginning of 2023. These are incredibly bright people coming out of the major labs, starting companies in very broad areas.
He points out there are no more than 5,000 people with specialist knowledge and skills around AI at this point in time.
While past cycles have focused on access to information, be it through mobile phones or internet browsers, the AI super-cycle is different. It is about access to cognitive knowledge – that is evolving output based on evolving input.
This is the first time I’ve seen the age of cognitive sciences, the age of understanding, truly at work where the machines are augmenting human intelligence and that augmentation is not necessarily with the intent to replace the human side.
He suggests that people should think of AI as being a co-pilot, an extension of your existing skill set to enhance it, in the way that a mobile phone is currently an extension of us. For example, an AI co-pilot in helping us educate our children, or set asset allocations in portfolios.
Yazdani says there are three core characteristics to pay attention to:
The need for fast ‘brains’ to compute, such as the Nvidia H100 chip
Data pipes – we are no longer using binary “if x then y” codes and inputs
Advancement of algorithms such that the data generates the rules – the rules are not pre-coded.
Any innovation can be disruptive, but this is not necessarily a bad thing. Innovation can disrupt how we deal with past challenges or help us to manage new challenges.
The people who accept change very slowly tend to lose fast. The people who embrace the change, tend to go with the change, participate in the change and win.
One of the opportunities he sees in dealing with a challenge of the past is in healthcare.
“Healthcare in the United States is 12% of our gross national product,” Yazdani says.
“Most of it goes to chronic diseases and chronic problems like cancer. If we can remove cancer, then that 12% spend would drop off immediately by 30-40%.”
AI and other technologies could be significant parts of the solution – he argues that cancer is a maths problem that we can’t yet compute, due to how it is personalised to each individual. AI could be an obvious game-changer in understanding and treating cancer.
Healthcare is just one beneficiary. Yazdani sees broad applications across society, be it in education, security, infrastructure and more.
Yazdani focuses on companies in the enterprise space, rather than the consumer side of AI, because of factors like long-term contracts and barriers to entry.
Two he currently finds interesting explore different areas of security.
Rhombus is a physical security company using AI and its use is standardised across public schools in America. It installs cameras across the school and can recognise and track cars and license plates for drop off, where a child is throughout the school, whether doors in the building are sealed, and unexpected noises that might indicate security incidents or issues.
“The company literally started in 2020 in the middle of COVID. Today, they have over 2 million cameras installed," said Yazdani.
"They’ve projected to have over 10 million cameras installed. All of these cameras are connected to the cloud, and connected to the grain of this AI that does all the work and sensors."
Another company Yazdani is invested in uses AI to digest and combine all cybersecurity threats and research as they are made publicly available. It then learns from it and applies it to corporate data so it can run surveillance based on the latest threat knowledge and flag issues in the system.
Finally, one of the biggest tech companies of today is part of his portfolio, Nvidia (NYSE: NVDA), which he bought back in 2020. While debate rages over whether or not this company is overvalued, Yazdani simply said this:
“I can’t do valuation work on this calibre of company or its market cap. That’s not my area of expertise. But I can tell you that the Nvidia H100 chip that went into production in 2022, I don’t see anybody being able to catch up with that data.”
This article was originally published for Livewire Markets on Friday, 15 September 2023.
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