Ask Archer: What do I need to know about AI?

A reader asks: What do I need to know about AI?

Archer replies: It was once said of 1970s actor Lee Majors that he has two expressions: grim and not so grim. The same cannot be said of the many faces of artificial intelligence, which is suddenly everywhere all at once.

When was the last time a corporate board struggle at a wonky nonprofit dominated the news cycle like the recent drama at OpenAI, the creators of ChatGPT? That’s a hype machine cranking along in high gear. Observers asked: is the company worth $84 billion, or nothing? Can they get the IPO out before they destroy the world? All things to ponder.

This kind of craziness calls to mind the Dot Com bubble of 20-plus years ago. The face of today’s AI technology is maybe OpenAI’s Sam Altman; the face of Dot Com zaniness was the infinitely more colorful Pets.com Sock Puppet. With one black eye, one white eye, a microphone and a line of patter reminiscent of Sesame Street’s game show host Guy Smiley, the Sock Puppet bestrode the startup landscape like a canine colossus. He was everywhere: the Super Bowl, the Macy’s Thanksgiving Parade, featured in People Magazine. Everywhere, that is, but in the money. A great idea but not then a great business, Pets.com shuttered its doors in November 2000, two years after its founding and nine months after going public.

For those who weren’t around then the Dot Com era could be said to have started in maybe 1994, the year Amazon was born, or possibly the following year when both Yahoo and AOL were launched. In 1998, when Pets.com opened its doors, the Internet only had 110 million users worldwide, according to its one-time CEO Julie Wainwright, who joined the company in February 1999. By 2000 that number had more than tripled to 361 million.

But that wasn’t enough to save the roughly 1,200 business to consumer Dot Commers that were out there at the time, as Wainwright counts them, and it all came tumbling down in the spring of 2000. Between 1995 and March 2000 the Nasdaq Composite climbed more than fivefold, from under 1,000 to just over 5,000. It unwound even faster; in one week in April it lost 25%. By early October 2002 the Composite index stood at 1,139, a decline of more than 75%. The Sock Puppet was relegated to the laundry heap of history.

That’s about six years from boom to bust (or, more optimistically, 42 years in dog time). By that metric, we are still early in the AI frenzy which could reasonably be said to have started with the rollout of ChapGPT in November 2022. This was, of course, the culmination of decades of research but it was only then that it broke through into widespread awareness. It’s now in full-fledged mania mode.

This kind of craziness almost always ends badly, but not nesessarily right away (not investment advice). The historic nature of investing bubbles has been that you mostly knew you were in one after the fact. There was always a reason things could go higher and they often did. Flip a house in a month and double your money? Sure, why not? Why not a week? A day? All good. When the prevailing metric in pre-IPO Dot Com land moved from profits to revenue to “eyeballs” the writing was splashed across the wall like the side of a 1980s New York City subway car. But there was money to be made, so everyone decided to look the other way.

Now things are a little different. The current nature of bubbles is that everyone is predicting one all the time. Favorites at present are AI and private credit. This drumbeat of Cassandras has a kind of numbing effect, however, and they are easy to dial out. And there’s another difference, as noted in an earlier column: AI is not so much a thing as an idea. Most of us couldn’t define it, but it is said to be embedded in everything from drug discovery and fraud detection to garbage sorting. There is nothing it can’t do. The mere announcement that Sam Altman would be joining Microsoft added $56 billion to the value of the company’s stock.

Here's another difference: where it seemed for a time that pretty much anyone could hang up a Dot Com B2C shingle, AI is  expensive to develop. The large language models on which technologies like ChatGPT are based cost $100 million in the case of ChatGPT 4, according to once (and future) CEO Altman. Here’s something else: the dark side of the world wide web – an overwhelming flow of information (and misinformation), the toxic nature of social media – snuck up on most people.  By contrast, the voices have been loud and persistent warning of the potential risks of AI (an effort to maximize strawberry production in Patagonia leads to the end of humanity).

But the benefits will be huge, too. Faster drug development, safer cars, more strawberries. If past is prologue, a handful of winners will eventually emerge from the scrum, and their technology will permeate society. Competitors will either be absorbed or disappear. The world will go even more “meta.” Likely it will take AI itself to sort it all out – our own personal guide to an increasingly indecipherable reality.

In one early commercial, the Sock Puppet is riding along in a truck with someone who looks suspiciously like a UPS delivery man, “purely in an advisory role,” as he puts it. He’s not behind the wheel because, as the company’s tagline has it, “pets can’t drive.” But with AI, maybe they will. Coming soon to a chew toy delivery near you.

Woof.

(Note: the first step in investing is having something to invest. To that end, my good friend Karen has gone live with a new Instagram page for Gifting Sense a great tool for helping kids make smarter buying decisions. Just in time for the holidays. Check it out!)