When folks think of unicorns, they typically imagine a mythical horse with a single horn on its forehead. But in the world of investing, “unicorn” is something completely different.
To Wall Street, a unicorn is a privately held startup company with a valuation of $1 billion or more. It’s called a unicorn because this status is a rare feat. In order to become a unicorn, a company must have an innovative idea, a clear vision for growth, and a solid business idea. Companies like Meta Platforms, Inc. (META), Alphabet, Inc. (GOOG) and Airbnb, Inc. (ABNB) are former unicorns.
Currently, according to CB Insights, there are 1,208 unicorn companies worldwide. But what I find particularly interesting is that of these companies, 92 of them are in the artificial intelligence (AI) space – including one founded by two ex-Google employees.
In today’s Market 360, I’ll explain what these two former Google employees are up to, and what that means for AI. I’ll also share the sector benefitting from the shift to AI.
The Market’s Newest Unicorn
A couple years ago, two Google engineers, Daniel De Freitas and Noam Shazeer, led a team to build the technology called Language Model for Dialogue Applications, or LaMDA . Unlike most other language models, this technology was trained on dialogue allowing the bot to have conversations.
However, Google felt this technology could damage the company brand with its knack for misinformation and toxic language. So, in late 2021, De Freitas and Shazeer left Google to turn their vision into a reality.
And thus, Character.AI. was born.
Now, this technology is a little different from OpenAI’s ChatGPT, which uses a question-and-answer model, as it is an open-ended conversation model. The chatbot allows folks to chat with the reasonable likeness of almost anyone, dead or alive, real or imagined. It is important to note that, sometimes, the chatbot answers incorrectly.
In fact, when you first go to the website, you are greeted with the following message:
The very first point made when you get to their website is that everything Character says is made up. The bot is just what its name suggests: a character for entertainment.
Like OpenAI and Google, De Freitas and Shazeer do have plans to train their system with larger amounts of digital data to sharpen the skills of their AI conversationalist. But this could take months and millions of dollars.
Now, in regard to being a unicorn, Character.AI. achieved that status last Thursday after raising $150 million in a recent funding round, putting the company at a $1 billion valuation. What’s interesting is that this comes just two weeks after the Silicon Valley Bank crash, which up-ended the world of venture-bank startups.
When asked what impacts the SVB crash had on Character.AI’s company, Shazeer said the crash had “no impact on fundraising” and that “all our cash is safe.” And with their latest fundraising announcement, it’s clear investors are continuing to show interest in the AI industry.
Sector Benefitting From the AI Interest
When it comes to AI, it’s not just AI companies that are on the receiving end of investor interest. There’s a whole other sector that’s benefitting from a connection to AI: the semiconductors. The iShares Semiconductor ETF (SOXX), which tracks semiconductor stocks, is up 28.2% this year. Compare that to last year’s 34.7% decline.
And the semiconductor sector continues to benefit immensely from the big AI push this year in large part because the amount of data processed and stored by AI applications.
Take Micron Technology, Inc. (MU) for example…
Micron Technology noted just this during its earnings conference call for its second quarter in fiscal year 2023 on Tuesday:
Recent developments in artificial intelligence (AI) provide an exciting prelude to the transformational capabilities of large language models, or LLMs, such as ChatGPT, which require significant amounts of memory and storage to operate. We are only in the very early stages of the widespread deployment of these AI technologies and potential exponential growth in their commercial use cases.
What’s interesting is the company also announced weaker-than-expected revenue and earnings results. Revenue declined 9.8% year-over-year to $3.69 billion, missing estimates for $3.7 billion. The company also posted an adjusted earnings loss of $1.91. This missed analysts’ expectations for an earnings loss of $0.86 by a whopping 122.1%. This also marked Micron Technology’s biggest quarterly earnings loss ever.
However, investors were happy to look past Micron Technology’s dismal earnings thanks to company management’s AI comments. As a result, MU shares rallied more than 4% on Wednesday.
The Real AI Leader
That’s all well and good for Micron Technology, but it’s not the real AI leader here. That title still belongs to NVIDIA Corporation (NVDA).
Remember that NVIDIA is a semiconductor that makes high-end graphics processing units (GPUs), used in products like gaming consoles and personal computers, and that chipmakers are vital to AI inventions. So, NVIDIA is a major player in the artificial intelligence arena.
Shares of NVDA have been on a tear in recent months, rallying an impressive 91% year-to-date. Part of the stock’s recent strength can be attributed to positive developments and partnerships in artificial intelligence. Last week, NVIDIA revealed that Google Cloud will be the first cloud services provider to use NVIDIA’s L4 Tensor Core GPU for AI applications.
The L4 Tensor Core GPU offers AI video solutions, with more than 120X times the AI-powered performance of regular CPUs — and it’s 99% more efficient. Google Cloud management noted, “As our customers begin to explore the possibilities of generative AI, we’re proud to offer them NVIDIA’s latest L4 GPU innovation as part of our workload-optimized Compute Engine portfolio.”
NVDA is still firing on all cylinders in the AI space, so it remains my favorite AI play.
With that said, NVDA isn’t the only semiconductor I like right now. There’s another semiconductor that operates in the lucrative automotive and renewable energy industries, and it’s well-positioned to prosper from ongoing demand for semiconductors in both industries.
I released full details on the company – ticker symbol and all – in yesterday’s Growth Investor Monthly Issue for April. I also revealed four other new buys – all companies that are well-positioned to climb higher in the coming months – and shared my latest Top Stocks lists.
Join me at Growth Investor today so you can jump on my newest recommendations while they still trade below their buy limits.
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The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Meta Platforms, Inc. (META), Alphabet, Inc. (GOOG), Micron Technology, Inc. (MU) and NVIDIA Corporation (NVDA)