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Hello, Reader.
I once asked my dad why his father migrated from the Illinois farm country to Montana cattle country in the early 1900s.
“Henry Ford destroyed all the farm jobs,” he told me. “My dad couldn’t get work on the farms anymore, so he moved up to Boseman to work as a cowboy.”
Now, Henry Ford did not destroy farm jobs personally, of course… but his innovative tractor did. His Fordson Model F tractor went into production in 1917 and became an instant hit with farmers in the Midwest.
As the first mass-produced, inexpensive tractor, Fordsons captured an overwhelming 70% share of the market by 1922, and their popularity grew rapidly. By 1928, 700,000 of them were rolling off the production line each year.
Artificial intelligence is not unlike Ford’s novel tractor. It is a new technology that will produce widespread efficiency gains, while also reducing or eliminating entire categories of employment.
Changes of that magnitude are difficult to imagine and, therefore, difficult to embrace seamlessly and profitably. That is why we must “future-proof” our lives to the furthest extent possible.
It is also why we must remain focused on the once-in-a-generation investment opportunities AI is producing.
In effect, artificial intelligence is slashing the world of commerce into two distinct groups: AI appliers and AI victims.
The companies that hope to survive and thrive must adopt and integrate AI technologies as quickly as possible. Those that fail to do so will cease… and time is of the essence, especially as technology is only becoming more advanced.
For the last few years, I’ve been monitoring AI’s growth toward artificial general intelligence (AGI) – the moment when AI develops superhuman intelligence.
I’ve found that superintelligent AI is already creeping into our lives, though it’s not been a single “aha” moment. Instead, AGI is how OthersideAI CEO Matt Schumer described it in a now-viral blog post:
It’s like the moment you realize the water has been rising around you and is now at your chest.
The tractor reshaped the American economy more than a century ago, but you don’t have to look back nearly that far to watch this same story play out. In today’s Smart Money, I want to discuss the last time a brand-new technology rewrote the rules of commerce – a breakthrough far closer to our own time.
Afterward, I’ll highlight a stock that isn’t applying today’s breakthrough effectively, giving you a reason to consider dumping it from your portfolio.
Let’s jump in…
The Last Great Technology Gold Rush
In the late 1990s, the birth of the internet triggered a massive infrastructure gold rush.
Telecom companies laid vast fiber-optic networks across continents and under oceans, convinced that internet traffic would surge immediately. They financed those builds with debt, equity, and exuberance.
They were right about the future, but disastrously wrong about how fast demand would grow.
By the early 2000s, the world was swimming in unused – dark – fiber. Bandwidth prices collapsed, and billions of dollars vaporized. Bankruptcies followed. Companies like Global Crossing, 360networks, FLAG Telecom, and Williams Communications lined up in bankruptcy court.
But the fiber didn’t disappear. It stayed in the ground. And once capacity became abundant and cheap, it unlocked an entirely new digital economy: streaming, search, cloud computing, e-commerce, and social media.
Netflix Inc. (NFLX) didn’t build fiber, Alphabet Inc. (GOOG) didn’t dig trenches across the continent, and Amazon.com Inc. (AMZN) didn’t lay undersea cable. They built economic engines and empires atop the communications infrastructure that bankrupt visionaries created.
Cisco Systems Inc. (CSCO), one of the prominent “builders” of the internet, saw its shares skyrocket more than 4,000% during the final years of the dot-com boom.
Then, as the boom turned to bust and internet exuberance turned to exasperation, Cisco’s shares utterly collapsed. They spent the ensuing 26 years “underwater,” until finally regaining their peak price earlier this year. (In case you’re wondering, Amazon shares soared more than 5,500% over this identical time frame.)
The mass-produced tractor made some farmers prosperous and others obsolete. The internet did the same to a new generation of companies. AI will be no different – it’s simply the newest tool sorting winners from victims.
As AI technologies stretch their tentacles into every facet of our existence, the roster of successful “AI appliers” will grow by the day. But the roster of “AI victims” will grow even larger.
Here is one such stock to avoid…
There Can’t Be Winners Without Losers
The companies that fail to adopt AI technologies either lack the expertise to do so or have business models that are fundamentally incompatible with AI.
Either way, we do not want to be holding stocks that AI is threatening.
Like the farmhands who couldn’t compete with the Fordson, Shutterstock Inc. (SSTK) is learning that a proud legacy is no defense against a better tool.
That’s why I continue to highlight at-risk companies from time to time, as I did at the start of my AGI-research, when I identified Shutterstock as a company “sitting in the crosshairs of AI.”
As I explained at the time…
Once upon a time, Shutterstock was a cutting-edge graphics company with a massive, and valuable, library of proprietary images. Today, that library looks more like an anvil than a pair of wings.
Thanks to GenAI technologies like OpenArt, “proprietary graphics” are nearly a thing of the past…
Because of these competitive threats, subscriber “churn” is increasing at Shutterstock. As a result, gross margins and net income are both collapsing… These declining fortunes reflect declining demand for the company’s core content library.
Since issuing that warning two years ago, Shutterstock’s financial situation has worsened. The company recently reported a 17% year-over-year revenue decline, falling to $221.8 million. It also reported a net loss of $155.9 million, compared with a net income of $29.4 million. Unsurprisingly, the stock has dropped about 80% since my skeptical analysis.
Shutterstock is not an outlier. Therefore, we must examine every prospective investment through the lens of AI and be alert to both the opportunities and the hazards it will create.
That’s why I’ve built a portfolio at The Speculator focused on investing in AI before artificial general intelligence takes hold, with a three-step process for identifying companies that will survive and thrive on the Road to AGI…
- Invest “in” AI: Buying shares of companies that are providing key parts of the infrastructure that will accelerate AI technology toward AGI. Think chip companies.
- Invest “alongside” AI: Getting in on the companies primed to rise in tandem with AGI, like those that provide the physical infrastructure of AGI facilities.
- Invest in “stealth” AI: Investing in nontech companies that will adopt and apply AI to reap huge gains in efficiency, productivity, and profits.
I put everything you need to know in this free special broadcast.
I’ve also put together three reports, where I have one recommendation ready to go for investing in AGI… another for investing alongside AGI… and a third for investing in stealth AGI.
You can learn how to access those reports and the names of these companies in my special presentation.
My grandfather couldn’t stop Henry Ford’s tractor. Instead, he saddled up and rode toward the work it left behind.
Investors face a similar choice now, except the tool is AI and the water is already rising. Make sure you’re standing on the right side of this trade before it reaches your chest.
Regards,
Eric Fry
