AI and the SAAS and Cloud companies we have been invested in

I have found that going against Saul’s analysis is generally not profitable.

However, I truly question throwing the cloud, cloud security, and big data companies out of my portfolio at this time.

Here is my conundrum.

AI has been unleashed and it is growing very fast. How fast?

This week Microsoft released Chat GPT 4 in its Bing. This is huge. HUGE!!! I have been a ardent user of Firefox and lately the Duck Duck Go browser and search engine. This changes today. Even though I believe that Google Chrome is both slow and creepy and I know that the Edge browser that is integrated in Windows is based on the Chrome kernel and that Bing is a laughable also ran as a search engine, today Edge and Bing are my preferred gateway to the internet. Why? Because Chat GPT 4 is integrated into Edge.

But wait! There is more!

Today a memo leaked from Google that laid out pretty clearly that neither Google nor OpenAI had a moat and that open source AI will over take closed source shortly.

This makes me ask some questions:

Who is going to make money off of this?

To answer that I have to know what AI needs.

My best guess is:

Compute and a lot of it. So anyone with real server centers with low cost energy and good internet connectivity would see a natural increase in business.

Data and a lot of it. Anyone controlling and producing data lakes will have the training data needed for AI. Think people who control vast libraries of video, people like AT&T that have vast telemetry data and Tesla with its monstrous lake of driving data.

These are the toll holders.

However, there are others that have the creativity and talent to exploit and sell AI solutions.

The question that is bothering me is this, “Can our existing big data companies and cloud providers capitalize on this.”

Right now it would seem that all of the SAAS companies and all of the big data companies would have the talent and the connections to make a lot of money very fast.

Here is a link to a news report. However, I have not seen the actual document. I have
heard it is a well thought out memo and I hope to get my hands on it.

For me, I have not seen enough to make me believe that the companies I have been invested in, the classic “Saul” companies with recurring revenue, have been disrupted and / or the leadership has become incompetent.

However, I am toying with the idea of taking a small position in Tesla and Nvidia. Tesla for its data lakes and Nvidia for its amazing compute and its environment for compute.



FWIW, DDOG clearly identified that they won 8 figure contract with big AI company… I am guessing its OpenAI… and they are using most of DDOG modules if I remember right…
while CloudFlare said big AI company… I am guessing its OpenAI… raised their contract value to >$1M

The more I see, the more I am convinced that DDOG, CFLT, NET (& may be ZS as well) benefit from AI related boost in cloud spending no matter who wins which application…
and these companies have been beaten down heavily right now…
why go after nVidia paying 25x revenue likely <20% growth this year when you can get these super leveraged AI bets growing at >30% this year and trading <15x TTM right now?

Secondary order effect of AI likely to see massive re-acceleration of digital transformation… this will drive SNOW and MDB as well…

To me at this point, DDOG has most upside if you think 2 to 3 years out…
with its almost hitting trough of growth based on current customer base, upcoming AI and digital transformation tailwinds…AND wait for it… cloud workload security… yes they mentioned their security development on the earnings call and if you think about it, they have very high probability of winning this space big…

If you go back and observe, Olivier thinks and operates very different from many other SaaS companies… DDOG really focus on adding ver very close adjacency and builds best product and ends up winning a large portion of the pie… they also charge premium price so revenue builds up fast… I think their cloud workload security success will be even larger and surprise everyone.



"Secondary order effect of AI likely to see massive re-acceleration of digital transformation

I really think this is a key concept that we need to keep in mind when we think about how AI will/should impact our investing.