Jacob Mitchell: How to spot an AI imposter

Note: This clip was taken from the AI Panel at Livewire Live 2024 on 17 September 2024 at Sydney's Art Gallery of NSW. You can check out the full video below:

Equities

Watch: How big is the AI pie? Who wins and who gets crushed?

View

There are probably more artificial intelligence imposters than investors realise. But how do you spot the fakers from the real winners before it's too late? 

According to Antipodes' Jacob Mitchell, investors should avoid businesses that have no real technological advantage, companies that don't have a pathway to market - those that don't have distribution, and stocks that don't have any data. 

"In software, there's a real difference between a platform software company like a Workday Inc (NASDAQ: WDAY) and Oracle (NYSE: ORCL) (both Antipodes holdings) or a Salesforce (NASDAQ: CRM), and at the other extreme, a Zoom (NASDAQ: ZM) or a point solution," he explained.  

"I think the point solutions are really easily disrupted in this world." 

Take Zoom, as an example, which once traded on a revenue multiple of around 30 times. During the COVID-19 pandemic, investors extrapolated that Zoom would put an end to all business flights... Obviously, while business flight volumes may have fallen, that hasn't happened. 

"It's natural for the market to extrapolate revenue growth to continue, and then something doesn't actually work out to be a resilient business," Mitchell said. 

"I'd be hunting [for shorts] in vertical software, point solution software, and then companies that are funded by private equity that don't have the resources to take their tech forward." 

Roughly 20% of the US workforce is in a company owned by private equity, and funded by private credit or high yield bonds, he added. 

"Because of where interest rates are, they don't have any cashflow, so they can't invest in their tech stack," Mitchell said. 

"The winners are pretty much mega-caps. The losers are medium to small businesses that don't have the resources to invest and stay current."