Welcome to another episode of our Hypergrowth Investing podcast, folks! This week, we’re taking a deeper look at a topic that’s had investors enraptured since November – artificial intelligence (AI).

We’ve talked about the differences between narrow and general AI on the podcast before. But why is the distinction between the two so important when it comes to investment strategies?

For one, a lot of people get it plain wrong. Take Blake Lemoine, for example. Blake notoriously was fired from Google for publicly discussing his work on Google’s LaMDA engine and claiming the AI had become sentient. And while his argument does wade into several important discussions the world should have about artificial intelligence, it confuses a narrow AI with a general AI: 

“I ran some experiments to see whether the AI was simply saying it felt anxious or whether it behaved in anxious ways in those situations. And it did reliably behave in anxious ways. If you made it nervous or insecure enough, it could violate the safety constraints that it had been specified for.”

However, the difference between narrow AI and general AI is that a general artificial intelligence is truly creative while a narrow AI relies on language prompts and large language models to formulate its response.

General AI systems can do theoretically everything; think Jarvis from Iron Man or HAL 9000 from 2001: A Space Odyssey. These sci-fi-inspired models are omniscient and omnipotent – and they’re also nonexistent. But narrow AI – (aka focused artificial intelligence), systems designed to complete more singular tasks – is very real. And it’s the type of artificial intelligence that will see rapid mass adoption over the coming years.

Now, with this explosion in AI hype, hundreds of startups will also emerge, all aiming to create the best-in-class technology and become the top dog in the industry. But as with all technological innovations that came before it, the industry will eventually experience a great consolidation. And the companies based on general AI – all hype and no substance – will fail.

So, if you’re looking to profit from this emerging megatrend, we’ve got two words for you: narrow AI.

Spotting Winners in AI

So, then, how do you find those winning needles in a growing AI haystack?

First and foremost, the most important thing here will be the team. A lot is going to change as the artificial intelligence industry powers forward at full speed, so having a strong team to navigate a rapidly evolving landscape will be vital. Look for folks with strong tech backgrounds, especially people with prior success in the business and those with big visions. This industry will reward big thinkers. 

Second, examine the resources. A team can only do as much as a company’s resources allow. Find well-capitalized firms that are backed by large companies with the resources to develop robust artificial intelligence.

And third, find firms with products that customers have validated. Take ChatGPT, for example. Since its release, it has continued to impress millions of users across the globe. Plus, OpenAI – ChatGPT’s creator – comprises some of the industry’s top talent, and the company is also backed by tech titan Microsoft (MSFT). 

That’s a winning combination. Indeed, if OpenAI were public, we’d definitely be buyers. 

Listen to the rest of Luke’s thoughts on artificial intelligence, along with his current take on Fisker (FSR), Lucid (LCID) and Opendoor (OPEN), here!

On the date of publication, Seth Kuczinski did not have (either directly or indirectly) any positions in the securities mentioned in this article.