Artificial intelligence has captured the world’s imagination, but with a few exceptions, investors can’t yet expect financial tailwinds in 2024.
Gil Luria, managing director at DA Davidson, told Yahoo Finance that direct monetization of AI services will remain out of reach for most companies. As companies ramp up their use of AI, software manufacturers are likely to include their AI capabilities as a benefit to existing products or as a way to encourage upgrades in place of paid standalone products.
“Tools built around generative AI are exciting, but they’re still in their infancy. They’re still figuring out the problems,” Luria said. “The trend for companies is going to be to bundle these products together to drive adoption, so we’re probably still a little ways off from being a real growth driver.”
Tell that to investors who are hooked on AI trading.
Software ETF IGV is up about 50% over the past year. In comparison, the Nasdaq Composite Index (^IXIC) rose 34% and the S&P 500 (^GSPC) rose 20%. According to Luria, this exceptional performance is primarily due to the excitement of his AI. “We believe most software companies will face headwinds to their stock prices unless they deliver tangible results with AI.” [this year]. ”
Microsoft still leads the industry, Salesforce is well positioned
Outliers are Microsoft (MSFT) and Adobe (ADBE), both of which Prosecutor Davidson ranks at the top of the megacap list due to their advanced AI capabilities and solid business outside of their field.
Adobe, the leader in text-to-image generation, has built-in generation AI capabilities across its creative suite and offers generation AI credits that entice users to pay extra to use these features. It has a system.
Microsoft uses its Copilot service to charge users extra for access to its AI assistant built into Microsoft 365, GitHub, and more.
But the real cash cow for AI will continue to be Azure, the cloud service that provides access to OpenAI and other companies’ large language models (LLMs) that developers can use to build their own applications. .
Monetization may not be immediate, but software that supports customer-facing roles is well-positioned for the future. Luria says that while the possibilities for generative AI are touted as nearly limitless, proven use cases currently focus on text generation, text summation, and text-to-image generation.
These use cases are most relevant to tasks like prefilling emails, summarizing calls, and answering common questions. All of these features are built into Einstein Copilot, the Salesforce (CRM) AI assistant, scheduled for general availability at the end of February.
Morgan Stanley recently upgraded the company’s stock to its top rating, citing the company’s consistent revenue growth and relatively moderate trading multiples compared to its peers.
In the age of AI, data is worth gold, so investors should look for companies that are leading the way in data access and integration. For example, Salesforce already hosts a wealth of data from companies that use its products to automate customer service, marketing, and other tasks.
In December, the enterprise SaaS giant announced a new feature that imports unstructured data (such as emails and phone calls rather than database entries) into its data cloud product, which connects data from its various software products. did.
Nick Johnson, Salesforce’s senior vice president of strategic partnerships, predicted, “Assistants will lean on each other to help the end user.”
“One of the most common ways to improve or prevent hallucinations is to provide more context,” says Patrick Stokes, executive vice president of product and industry marketing at Salesforce. he told Yahoo Finance. “Being able to connect business context to prompts allows LLMs to get the additional information they need.”
The future: smaller models, bots and bot conversations
Large-scale, universal knowledge models like ChatGPT are getting all the attention, but companies that develop more efficient models will likely rake in the profits. Employees at a lamp manufacturer don’t need help drafting an email about the Roman Empire. Smaller models containing only relevant information are cheaper to operate and companies can benefit from them. Such efforts are underway at companies such as Microsoft and Salesforce, among others.
“We learned that the company recently formed an internal team to develop smaller AI models (SLMs) to make AI cheaper to run and reduce dependencies on OpenAI. “SLMs such as Kosmos-2 aim to match the performance of larger models with significantly fewer parameters,” wrote Citi analysts who attended Microsoft’s AI Tour last week.
What does the future hold for enterprise AI? As platforms become more interoperable, bots may soon be talking to each other. An AI assistant that manages your calendar and an AI assistant that processes your customer information work together.
Salesforce’s Johnson predicted, “It’s similar to how assistants will come to each other to help the end user.”
If these assistants can program profits for the master, investors will be even better off.
Jennifer Wang is a senior editor at Yahoo Finance.
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