Folks may put me in the camp of “AI Pessimists,” but that’s not where I am.
AI is rapidly changing how we work and what we can do. We’re nowhere near Artificial General Intelligence (AGI). I doubt we’ll get there using current techniques.
But serious money is being made. I know because I’m making some of it. There are public companies in the AI space that are delivering spectacular results.
- Palantir (PLTR) has political advantages, but they were ready for this with their in-depth approach and database training.
- Oracle (ORCL) has overcome its own past stupidity and become a major infrastructure player.
- ServiceNow (NOW) has brought the advantages of AI techniques to “the enterprise,” a term I hate but that refers to large business organizations.
There’s more hype than reality to AI today, but that doesn’t mean there isn’t a lot of reality. The problem is that it’s sometimes lost amidst the hype, with reporters doing “mean girls” stories about CEOs rather than analyzing what’s inside corporate sandboxes.
Incumbents vs. Insurgents
I’ve seen this movie before. Incumbent cloud players are desperate to cross the technology chasm and assume leadership in AI. But this trick seldom works, as IBM, HP, and AT&T can attest. Which only makes the incumbents more desperate.
The move by Meta to buy Scale, actually to hire its 28 year old founder Alexander Wang, is of a type. Scale, as the name implies, is in the infrastructure space, where cash flow remains king. Meta has a ton of cash flow, $24 billion in the last year. But does this mean Meta is going to keep its crown?
Not necessarily. That’s because Meta’s markets, like those of Google, are under fierce attack. The kids don’t google things. They ask ChatGPT or Perplexity about things. Social networking is in a bad odor, it’s becoming what grandma and grandpa do, so there’s little growth there.
Both Meta and Google are making money with video, Reels and YouTube. They’re competing here with TikTok and X, especially in the developing world. But guess what? That’s not AI, and it’s certainly not where the big growth is. They’re both successful because they have the necessary digital infrastructure, on both the delivery side and business side. But doesn’t that make them just updated versions of AT&T? I suspect so.
Scale may get Meta faster monetization for Reels, but will it change the AI game?
Profits Matter in Software
Software has been King for as long as there has been computing. IBM had it in the mainframe era, Digital Equipment in the mini-computer era, Microsoft in the PC era, Google in the cloud era.
This is the “great game” AI giants are playing, and they’re losing. OpenAI may bring in $12.7 billion of revenue this year. But it may be spending $27 billion to bring in that money. It’s little things like that from which big crashes grow. If OpenAI can’t narrow the gap, investors could sour on the whole AI complex, which is driven by hype, by hope, and by the promise of unlimited growth.
While everyone is looking at “big software” to dominate, like Large Language Models, I suspect it’s “little AI” that will make the profits. I’m talking about targeted solutions, small databases, agents, things that drive productivity and programs that don’t think they’re real boys and girls.
For me, that makes ServiceNow the one to watch. Small databases and agents are their meat. They’re making big profits there right now, helping customers implement successful agent systems, building out what it calls an operating system for agent software.
AI is not a product of clouds. It’s a product of databases. ServiceNow CEO Bill McDermott has been in the database game for over 20 years, and his are the results I’m going to be looking at most closely over the next year, to see where AI is really going.
