Astera Labs (ALAB), SoundHound AI (SOUN), Nano-X Imaging (NNOX), Airship AI (AISP) - Small-Cap AI Stocks

SoundHound (SOUN), Airship AI (AISP), Nano-X Imaging (NNOX), and Astera Labs (ALAB) are the hottest artificial intelligence small-caps on Wall Street. We cover these young AI stocks, starting with a method on how to use ChatGPT to evaluate small-cap AI stocks. Next we discuss the potential of AI small-cap companies and the challenges of narrative investing. The episode concludes with a discussion on Apple's ability to monetize AI and the recent lawsuit against the company.

AI Small-Cap Stocks Takeaways:

-AI investors can use ChatGPT and Yahoo Finance to perform a great analysis of young AI companies
-SoundHound AI ($SOUN) is a controversial AI startup stock
-Airship AI ($AISP) shot up after receiving a key Pentagon contract
-Nano-X ($NNOX) is a medical data company providing FDA-approved AI models
-The Astera Labs ($ALAB) IPO purposefully shut out retail investors
-Running local AI on phones and personal computers may be overhyped
-Apple ($AAPL) has no clear path to monetizing AI in a big way

Chapters

0:00 Introduction and Overview
1:26 ChatGPT + Yahoo Finance for AI stock analysis
4:21 Discussion on Soundhound AI
6:14 Discussion on Airship AI
9:07 Discussion on Nano-X Imaging
16:21 Discussion on Astera Labs
29:17 Narrative Investing and Future Growth
39:17 Apple's Ability to Monetize AI

Transcript

James (00:02.146)
Welcome to the investing in intelligence podcast, where we talk about artificial intelligence companies, stocks and trading. I'm James with my co-host Kai. And today we will be talking about AI small caps. I wanna remind you that the opinions expressed on this podcast are just that opinions. They should not be taken as specific advice to invest in a particular way. So before we jump into looking at the four companies we'll look at today Soundhound, Airship AI, Nano X, and Astera Labs.

I wanted to just give an overview of how I value a small young company. So how do I actually try to figure out the value and the financial status of a startup company, one of these very young, small cap companies. So let's take a look at what I would recommend as, as the way to really go about doing this and

Essentially, I'm going to go to Yahoo Finance, and I'm going to type in the name of the company, in this case, Nano X. And once I get there, I'm going to go over to Statistics on Yahoo Finance for Nano X. And I'm going to zoom way out on my browser, and I'm going to take a screenshot. So I've zoomed out pretty much as far as I can zoom out here. And I'm going to go ahead and just take a screenshot here.

See if I can get everything in the screenshot.

And then, so I've gotten pretty much everything I can get. I could take another, I actually I'll just go ahead and just take another screenshot here to get this. And then I'm gonna go over to their financials. And I'm gonna take another screenshot over here.

James (01:52.322)
So that just shows their income statements. I'll go to balance sheet. I'm gonna take another screenshot here.

James (02:00.93)
Cash Flow. Another screenshot here on Cash Flow. And then the last screenshot that I'm going to take will be on Analysis. So I switched over to Analysis on Yahoo Finance. I'm going to take a screenshot here. And then pretty much at this point, all I have to do is go over to ChatGBT. And I'm going to drop all those images in there. So I'm going to pull those images up that I just took. It looks like I took like eight images.

and I'm gonna drop them into chat GPT. Okay, so it's saying maximum number is 10. So I'll need to take that into consideration. I think I'm gonna go ahead and just skip one. So I took one, two, three, four, five, six, seven, eight, nine. And so it's allowing me to add nine. And I'm just gonna say, evaluate this young company.

and I'm gonna say the name of it. And I'm gonna just pull in the description so that ChatGBT has a little bit of like context on what this company is and what they do. So I'm gonna copy the official description that the company gives, give that to ChatGBT. And then ChatGBT is going to look at all these images and it's gonna do a pretty phenomenal analysis for me of this company.

Now in this particular chat, I've already actually run an analysis on the two other companies we're talking about today, Airship AI and Soundhound. So you'll see those up above. I gave it a few less images for those and it came out a little bit more quickly with the answer. So you can see it breaks down cash flow, balance sheet, income statement, valuation, trading information, and then gives you an overall evaluation at the end there. I was...

extremely impressed with the output that it gave. And you can see it's taking a little bit longer because I gave it 10 images on this one. So once I've actually given it that, I can go back and I can do summaries. I can ask it to summarize it if it gave me too much information. And I can even ask it to compare and contrast the different companies, which is really where you get into the granular power of AI comparing and contrasting different data, pulling insights out of data.

James (04:21.942)
So you can see here we've got it for Soundhound. So we're gonna actually give you our take, but I'll also kind of go back and I'll look at ChatGBT's take on these companies too. So first company that we're gonna start with will be Soundhound. Soundhound is one of two companies we'll discuss today that were actually mentioned as part of NVIDIA's holding. So NVIDIA purchased stock in a number of companies, I believe last year, and...

Soundhound is one of the companies that they were revealed to be a holder of. So we're going to take a look at Soundhound first, and you'll see that I've got their you see I've got their website pulled up here. And as you can see, Soundhound is a company that focuses on audio AI. So they say here that they're essentially providing solutions for different industries and audio AI. These are essentially AI agents that can take the place of employees.

Here's an example of what they're doing at a restaurant where you can talk to the restaurant and choose what you want to buy from the restaurant. Now SoundHound has been extremely volatile. It looks like I entered at the $5 mark and now it's at $6, but it actually went all the way up to $9. So it essentially doubled. So I was up almost 100% at one point and now it's back down to $6. You see extreme volatility in these small cap stocks.

Soundhound has a bit of an issue going on right now. So last week, two different analysts came out and said not to buy Soundhound. So one of them is a short seller named Cappibara Research. They titled the report, Lies, Damned Lies, and Cheeseburger AI, saying that Soundhound is a failing company peddling lies and deceptions at a price target of $1. We're gonna go to you in just a second here, Kyle, but I wanted to just mention that Cappibara...

looks like a lot of nothing. So this is clearly, this is their website. It's clearly an unprofessional website. Looks like a five-year-old made it. You can see all they have is a home and then a few reports that they put up here. So this is just a classic short seller, probably a one-man operation who put out this report. That being said, the other entity that downgraded Soundhound last week is not a small single entity. This is Cantor Fitzgerald, which is a massive global financial services firm.

Kai (06:23.022)
Thanks for watching.

James (06:43.862)
well-respected in the world of finance and they downgraded it to a sell. Cantor Fitzgerald says that, well, they mentioned some of the same things in the short report, but essentially they said that the valuation cannot be justified and they criticized the opaqueness of Soundhound's operating model. And also there's just some concern that maybe companies like Google and Amazon can do better than Soundhound in this industry. What's your take, Kai?

Kai (07:09.01)
It's very interesting. So using AI to evaluate these new AI companies is an interesting strategy. So what are three things you look at? I mean, could list off 10 in regards to just, say, a startup or a new AI company. Just three different criteria. Because I would say expert.

opinions and or upgrades or downgrades as farthest on my list away from the top. But what are the top three things that you look at if you're going to invest in one of these new startups?

James (07:52.566)
Yeah, I think that's a great question. And to be honest, I'm gonna go back. So when I look at a mature company, I'm looking for earnings growth primarily. I wanna see like steady earnings growth. For a mature company, you wanna see that they're not losing money, but unfortunately for a younger company, they're gonna be losing money and they're gonna have a significant amount of debt. So I would say financial viability is a big issue. And just to kind of go back to the chat,

Kai (08:21.314)
Well, what goes into that financial viability for you? Is that market potential or is that potential partners or sustainability? What goes into that for you in regards to an AI company?

James (08:36.946)
That's a great question. So first of all, we're looking at an EPS trend here and earnings history. So chat to be deep pulled out that the company had a mix of quarters where it either slightly underperformed or outperformed. So kind of mixed on Soundhound. But they found that the EPS trend shows that analysts have maintained their earnings estimates over the past 30 days. So haven't been any big changes cash flow has been negative. But we can see that they're raising money. So cash position is stable.

So it looks like the total revenue is growing. So here, this is a critical point here. Total revenue is actually growing, which is a good sign. So I say you keep... Yeah.

Kai (09:16.358)
It is a good sign, but some of these new companies, especially, and I believe SoundHound, for example, it's in the thousands of dollars, I believe, per quarter. I mean, it's not very high revenue growth. I think one of the things I particularly look at or the positives in regards to SoundHound is its partners and or 25% of the people of the invest...

investments in Soundhound are institutional investments. So Vanguard, BlackRock, NVIDIA are heavily invested in Soundhound, which means more than the experts, I look at whether some of these companies or institutions are investing in Soundhound. If they are, then I think there's a high likelihood of profitability in the future, especially in some of these digital and or app services aren't going to show good revenue growth until they

eventually get established or for example more companies are purchasing them to use and then all of a sudden you'll see a large revenue growth and so I like for example just financial performance first and foremost that's the number one criteria in regards to SoundHound it doesn't have that yet that's things like basic things like revenue how much cash the company has

Soundhound, for example, doesn't have a good sheet like that, but there's, I think, one of the other companies we're going to go over is NNOX, does have a fair amount of cash on hand and a pretty good asset to liability ratio. So it has its ability to pour cash into itself to become more profitable. The second thing is market potential. And I think that you could probably make this number one.

James, wouldn't you think? I mean, the potential market though for SoundHound is astronomical. I mean, I work in a particular field where SoundHound could potentially have a huge use. Absolutely. And to have actual voice automation or image automation where it's not just typing into a computer and getting a response, but you're getting an intelligent response that's not just

James (11:23.426)
disruptive impact. Yeah.

Kai (11:39.682)
for example, automated to three responses, I think many people potentially would prefer that as opposed to outsourcing some of those customer service agents. So, very interesting company, but those are three things, basic things that I look at. What about you?

James (12:01.278)
Look, so when it comes down to it, investing in small cap companies, investing in very young, money losing companies is narrative investing. And the best comparison I can make is cryptocurrency. And cryptocurrency, you have no fundamentals. All you have is technical analysis and narrative. So these companies really are all about narrative. You can't, go ahead.

Kai (12:20.942)
So stop there, explain just narrative investing. You can go into Bitcoin or cryptocurrency first, but explain narrative investing and what you mean by that.

James (12:30.122)
Yeah, when you don't have strong fundamentals to tell you something is a good investment, you have to pretty much understand the story. So what is the story of the stock? What is the story of the company?

That's why AI small caps are potentially a good bet because not only do you have a promising story, you have a very small market cap. So when you're buying a $200 million company, in the case of SoundHound AI, it's a bit bigger, it's over a billion dollars. But nonetheless, you're comparing that to a company like Nvidia, which is $2 trillion now. So I'm sorry, I'm sorry, I think I might've misstated the, how much is Nvidia worth right now?

Kai (13:07.586)
Yeah, no, it's okay. So do people more often than not get narrative investing right or is it wrong? Is it big return for big risk? For example, to use an example, was Tesla narrative investing for a period of time? Automotive companies really take a long time to get profitable and a lot of times it's potentially the parts and the fleet they already produce in regards to their vehicles.

James (13:24.382)
Yeah, so just to backtrack.

Kai (13:36.982)
Tesla's stock shot through the roof over a period of time. Now, it's been humbled, so to speak, I guess. But was Tesla investing, narrative investing?

James (13:45.15)
Yeah. So.

Tesla is still narrative investing. Now, Nvidia, which is now a $2.3 trillion company, to be exact, Nvidia is no longer narrative investing. We can see their earnings growth. We can see their explosive revenue growth. Tesla, unfortunately, is losing money. So the reason Tesla has such a high PE is because it's still a narrative stock. People are still hoping the narrative will eventually turn into future growth and future revenue increases. Right now, though, you're just hoping for the future. So that's what I mean when I say

narrative investing, you're hoping for a future of higher growth and higher revenue and profitability, of course.

Kai (14:25.486)
I think potentially companies like Soundhound aren't the narrative investing that you're doing is writing the narrative in regards to the story for companies like NVIDIA. Because companies like Soundhound or other, the end points of these AI companies, if they don't become profitable or show revenue growth, eventually, let's be, I think NVIDIA...

the purchase orders for Nvidia chips will not continue. Then so...

James (14:58.042)
valid. I mean that's valid. So

Kai (14:58.942)
Yeah, I think it's these are interesting stories to watch this sort of narrative investing. If you're not into actually investing in some of these companies, you may want to watch them very closely because in the next two to three years of companies like Soundhound don't become profitable, then it may be time to cash out of your Nvidia investment, so to speak.

James (15:19.73)
Yeah, that's actually very valid. And we know that there are big companies like Microsoft and Google and Meta that are buying all these GPUs from Nvidia, but Microsoft, for example, with their Azure cloud services is actually selling GPU use to companies like SoundHound. So you're absolutely right that the software side, the application side of all this needs to work out. Let's look at a next. Let's look at the next company that's doing software on AI, the next small startup, and it's called Airship AI. So you can see that they're a little more involved in the

defense industry and they do have some hardware also so they're not a software only play here you can see they're out outpost AI here

But then you see a couple things mentioned for their software. So they're saying here they're doing enterprise video data and sensor management. But they do a lot of that for defense industries also. You see a drone here. So when I go over to their chart, it's been extremely volatile also. Looks like I entered at $6.26 over the last three months. It's jumped all the way up to...

$13. So I more than doubled my money and now it's back down to 867. Now the reason Airship AI shot up so much in the last month, month and a half, because of a news, a new snippet on a contract they got with the Department of Justice. So Airship AI announced a significant sole source contract award within the Department of Justice for Acropolis Enterprise Video and Data Management Platform. This is their first, so first agency within the Department of Justice to deploy their services.

kind of a big deal, should be a big contract, and there's a lot of hope that these contracts will continue. But right now, their market cap is relatively small, 214 million. So once again, we just talked about a $2.3 trillion AI company. Some people think that NVIDIA will grow to $10 trillion over the coming decade, and we're looking at a company right here that's 214 million. So if it caught two, 3% of NVIDIA's market cap, this would be absolutely explosive growth for anyone who's holding it.

James (17:20.226)
So that's why these small caps are attractive to speculative investors, but this is a highly speculative play. What's your take, Kai?

Kai (17:30.474)
Yeah, nothing like the government to fund some of these new AI startups, I guess. But yeah, I mean, my take is the same as Soundhound. I wouldn't particularly invest in this. I would rather invest in NVIDIA because I think they're going to have purchase orders for the next two to three years from companies like Microsoft and Meta. So if NVIDIA is gonna grow to $10 trillion, that's substantial growth with

consistent purchase orders that are in place. I'm suspecting these purchase orders are in place. First and foremost, let me clarify that. But I am going to watch AISP and Soundtown very closely because the story is being written and I would like, I think third part of the story is gonna be very important.

James (18:20.786)
Absolutely. Now the next company that we're going to take a look at here is Nano X. And it looks to me like they're mostly focusing on AI models for healthcare. So I've pulled up their website and you can see they have FDA cleared AI models for healthcare. So this one is for coronary artery disease, AI algorithm that automatically detects coronary artery calcification to identify patients at risk. Here's another one here for bone health algorithm that detects vertebral

compression fractures and low bone mineral density to help identify patients at risk. So we have a number of different FDA cleared AI models. So they're a data company. They actually own the data that they're doing these medical imaging models for. So this is a very interesting company to me. They also have a relatively small market cap, $541 million. Their stock has been a little bit less volatile in the last. So it did jump from six to

You can see my entry point was $10 here and it's been hovering around those levels since it did that initial jump.

Kai (19:30.143)
I haven't seen who are the partners or this, for example, potentially the investors in this particular company, but I do believe when I was researching NNOX that its cash and liabilities are very good. Out of the three companies, I actually like this one the best. There's one thing I didn't like as far as the geopolitical concerns, which are a concern in regards to investing in startup companies. I said, well, this is an Israeli company. I think it's centered in...

James (19:58.11)
I mean, Intel also has huge office in Israel. So I don't think we can say, I mean, Israel obviously is a small country, but nonetheless, it's not like Israel is.

Kai (19:58.308)
uh, Tel Aviv.

Kai (20:09.65)
The level of concern for me is very small. The market potential for this when I was going through their website and looking at their financial performance, revenue, cash, is very good. I think one particular thing, and we can get into this later in regards to the medical field, is objectivity. There's a human component for which it is difficult to quantify.

a lot of what the medical healthcare industry does in regards to treatment of patients. And so AI can analyze and collect an astronomical amount of data that I think will revolutionize healthcare in many different ways. And so I think that there could be unlimited potential in regards to the image analysis component of artificial intelligence. Let me say that. So...

I think, for example, using CT scanners to determine patients that are at risk for myocardial infarctions or coronary artery disease and heart events and being able to start them on preventative care earlier could revolutionize a lot of healthcare. And a lot of that is basically what happens is when you take these pictures, a radiologist will then...

look at them. So there's still a human component to a lot of this. Even when you provide objective measures on particular images, either x-rays or ultrasounds or CT scans, it's still humans at the end of it that are

providing a recommendation. Okay, so if you can get rid of potentially a human component and just completely objectify it in regards to a protocol, I think that is very good because it potentially has a lot of use, as well as being able to do it at a low cost. And so I'll be watching NNOX most closely of the three companies, but...

James (22:07.562)
Yeah, absolutely. Yeah.

James (22:14.858)
Yeah, yeah, definitely. Now.

It's possible these companies could go to zero. That's the tricky part when you're investing in small caps. It's very high risk because you don't know if they're gonna make it. They have to have a good idea. They have to build their network, their clientele. A lot of things have to fall into place for these small companies, but Nano X and Soundhound have Nvidia as a major shareholder in their company. So that tells you something, just like Recursion Pharmaceutical also. Now Recursion hasn't had great earnings reports, but their company's market cap

already bloated way up, whereas a company like NanoX and Soundhound still has a much smaller market cap, which gives you the potential for a larger future growth. So I did want to mention, because you said something about how these medical AI companies have good potential for future earnings and growth based on what they can do, their potential to disrupt the medical world. So I think I told you previously a couple of months ago, the most downloaded model in

open source repository for AI models was a pathology model. So just think, pathologists are people looking at slides and trying to identify cancer and things like that on slides. So literally they're looking at images and trying to make determinations of what those images mean for the patient's health. It's a perfect thing to disrupt with AI. And that was the number one, like massive amount of downloads. So people are already building pathology AI.

So it's going to be massively disruptive. It's interesting to see a company like Nano X getting into this. The last company I wanted to mention. Um, so we, we previously mentioned Soundhound, which IPO'd in April of 2022. AISP, which IPO'd in December of 2023. And, um, the last one was Nano X, which IPO'd in August of 2020. Well, there's another one that IPO'd last week and that one is Astera Labs. So this company. IPO'd.

James (24:13.618)
last week in my opinion it was a relatively unethical IPO so Robinhood did not give any allocation to Robinhood users. There's no option to get into the IPO for the majority of retail that uses Robinhood and when it started trading on March 20th you can see it was listed at 36. It shot up pretty much to 60 almost immediately so by the time I could buy it looks like my entry was $60.47 so I entered

30 or 45 minutes before the close. So Robinhood did not allow users to even buy the stock until there were only 30 minutes left in the trading day. Or to be fair, it might've been about an hour left in the trading day. Nonetheless, not only did we not have a chance to get into the IPO before it IPO'd, so retail was kept out of the initial allocation, retail also couldn't even buy it on Robinhood until an hour before the close. So in other words, 100% of the move.

was pretty much taken away from retail. So rather unethical IPO in my opinion, nonetheless it's done okay since it was actually made available to retail. So this one I have a bit of concern for because it looks like they're doing some things that Nvidia also does not to mention Arista network. So they're doing, I see they mentioned ethernet, ethernet connectivity solutions. I know Nvidia also has their own ethernet, they call it InfiniBand. So.

cables, PCIe, some of the things that they're doing. We've got other companies like Broadcom and even Nvidia that make this stuff. So I'm not sure people really understand what level of competition Astera might have. They just heard it's a new AI stock and they bought it up. Right now their market cap is sitting at 10.6 billion, way above the previous three companies that we mentioned, which might actually be more promising. So what's your take on this one? Or do you have any take at all? Any thoughts on the IPO and how that went down, Kai?

Kai (26:08.986)
Yeah, I'm going to be upfront and say understanding, for example, the competition in regards to, you use the term picks and shovels and these internet cords is a little out of my area of understanding in regards to what makes their, what I'm hearing from you is, for example, these cloud network builders like Arista Networks are a direct competitor. I do think, I will say the one thing that.

James (26:18.26)
Yeah.

Kai (26:33.806)
Competition in regards to some of these startups is something that's good to look at as well. What are the comparable industries? How much of the market share are they taking? Is there room in regards to that market share that can be had? And that's something to look at. For example, if the other competitors are crap and aren't doing anything and haven't shown promise in regards to revenue growth,

people aren't buying their product. But, and so that's something to look at, I would say competitors, maybe they're just gonna be better. Maybe they're proud, they put out a product that's better than their competitors. And that's something to consider as well. So I think these are all great conversations to be had. The big takeaway I have from this, that I have from this is the narrative. What you mentioned is the narrative. And I would follow these along very closely because they're...

James (27:28.718)
Yeah.

Kai (27:32.246)
some of these companies are going to write the narrative that is AI. And to counter my point in regards to that, I think that what are your thoughts? So a company like Astera Labs or a company like Soundhound, they start to show revenue growth and then all of a sudden Apple comes out with their automated visuals, automated

James (27:36.63)
Absolutely.

Kai (28:02.794)
take phone calls and answer your questions. Are they just gonna stomp out these guys when they come out with their product? Or do they have no motivation in regards to coming up with these products? Or maybe you invest in them because Meta goes ahead, is gonna go ahead and buy something like Sound Hound out eventually. What are your thoughts on that?

James (28:21.364)
Oh yeah.

Yeah, you covered some of the really big possibilities. So acquisition, acquisition is one really big possibility. And that's actually a good thing for shareholders because you'll see a big boost in the share price as soon as an acquisition is announced. But obs, obsolescent or being obsolete, if that's a term, that's also a very real possibility. So yeah, these small cap companies, you have to know their narrative, but also the more you can dig in and see who their competitors are,

have any moat at all, things like that will give you a better idea of their future earnings potential. So I would say these small cap companies are really a DOR situation, a D Y O R do your own research. You have to do your own research. There's not a lot of public info out there. You have to read news articles, read filings, especially the earnings call. You're not even going to have a morning star report on a young company like this. So you really have to do as much of your own research as you can.

figure out where you're putting your money. But you know, it doesn't hurt to have a small allocation into a company like this. Even a small allocation could double, triple, quadruple if the company really takes off. So that's kind of my take on it, yeah.

Kai (29:28.298)
Yeah, I mean, Apple in the news this week, and we can get a little bit into the market this week or the coming weeks. I mean, the federal government is suing Apple because they hold a monopoly. Basically, for example, if you can't, your iWatch doesn't hook up to an Android phone. And so maybe these apps aren't compatible with your iWatch in the future, and therefore can't be used in some of these startups. And so Apple...

James (29:53.558)
Well, you clearly are not an Apple Watch user based on the terminology you're using for it. You clearly are not an Apple Watch owner.

Kai (29:59.718)
I currently do not have an Apple watch. I am a Apple product user. I have never purchased the Apple watch. Full disclosure, I'm a Garmin watch guy. I'm a Garmin watch guy. I've always worn a Garmin watch. James is an Apple watch user. So maybe you can go into that a little bit. I'm trying to make a connection here in regards to Apple's monopoly on the technology. And maybe Apple will stomp out or...

James (30:06.886)
Yeah.

Kai (30:26.274)
their technology, they'll come out with some of their own, come up with some of their own technology and because the majority of, at least Americans, use Apple products, you know, what's your take on that there?

James (30:37.374)
You know, I have a pretty strong take on this. First of all, we're not going to know until the middle of the year, their, their conference will be in the middle of the year. We do know that they're doing something in AI. We know that they canceled their car unit, move people over to their AI unit. We know that they're in discussions with Google for an AI partnership. So we know they're working on it, but my concern is their ability to monetize AI. If they add it to Siri, are they going to charge 999 a month for Siri plus? I mean, I would rather have chat GPT. We know open.

AI is doing the best work in AI and I've already got a chat with these subscriptions. So why would I pay 999 for Siri Plus? So yeah, it's very possible that they do add AI to Siri. It's possible they add more AI into the phone. But I believe that AI on the device is a lot. I tried to download an AI model, run it on my top of the line MacBook Air with 16 gigabytes of RAM and it still wouldn't work. I needed 18 gigabytes of RAM.

run real AI models on the device right now. So I understand Samsung is trying to do something like that, but I think they're probably doing it in the cloud. So I don't believe in this whole idea that we're all going to need to upgrade our devices. So there, I don't believe, I mean unless you're buying the top of the line, $4,000 MacBook pro, your laptop is probably not going to run an AI model on it. So it's going to happen in the cloud, which means we're talking like Siri plus, which I don't necessarily think I'm going to pay 999 for.

Kai (32:05.438)
Interesting. Well, I think Apple, correct me if I'm wrong, is a large portion of these, for example, I have an app, I've developed the software for an app and I put that app on the iPhone, I still have to pay a pretty substantial amount to Apple just to have that app on your iPhone. And so a lot of their revenue is from that. And that's part of the problem in regards to what the federal government is at least suing them for is because...

you have to utilize that app, you have to run it on your iPhone, for example, because the technology, at least for iPhones, Macs, iPads, the majority of Americans use them and the biggest one is the iPhone. And so I have two questions for you. You brought up a really interesting point in regards to AI. In order for AI, as I see it, to potentially be profitable, it needs to...

be extrapolated to the average everyday American to use on their devices. So in the future, is that going to be a possibility or is the computing power for some of our individual devices impossible? Because besides just open AI and some of these servers, what's potentially the end game here? And this goes into what the narrative of the story is because what is your take on that? I guess my question is, is that gonna be possible in the future?

James (33:30.966)
So the end game is that the value in AI right now is accruing in a few different definitive places. So it's accruing to cloud AI providers, like for example, Microsoft, Azure, we're talking Oracle. Yeah, so those two really big ones. Now CloudFlare also, which is a much smaller company, they're doing regional AI data centers and AI cloud. So value is accruing to those companies in a big way right now. And then we do know that value is accruing to open AI,

which is the software layer. So there is some value accruing to the software layer, companies like Databricks, the company I mentioned earlier, Hugging Face, which is a potential IPO target for 2024. They're making money by providing software for AI. So there is like a software accrual. Now, but what you're talking about, the everyday user, normal people who probably don't even have a chat GPT subscription, how do we get them to pay for it? That's where I start to break down

value proposition. I don't see everyone going out and paying another $10 a month for a special Siri that does AI. It's almost like Apple needs to just add it to Siri without charging people to maintain their dominance when things like ChatGPT are catching on and by the way, there are already startup companies that are making devices, physical devices for AI like a little clip that you put on your shirt.

Kai (38:46.641)
Yeah, so one of my questions I'd have in regards to Apple is that prior to the iCloud being developed and now I think the majority of Americans pay for an iCloud subscription. Otherwise everything was just downloaded on your phone. Me in particular, I've progressively bought more and more of an iCloud so that...

James (39:10.656)
Yeah.

Kai (39:10.841)
I can store my photos, store my computer files, and I don't buy an external hard drive. And so I envision potentially something like that in regards to AI on your iPhone. And so what are your thoughts on that?

James (39:17.612)
Yeah.

James (39:24.458)
Yeah, and these companies are sneaky. So Google and Apple are sneaky. So maybe they get you to pay. So first of all, they get you on their device. Then you run out of space. You run out of storage space on the device. And of course you need to pay for iCloud because you used up your free storage, which is very little, like a certain number of gigabytes and they need more gigabytes. So you pay for the storage. Well, then they gradually raise the prices on what you're paying for. So over time, they find a way to get you

revenue from you and many, many millions of billions of other people. So I don't doubt their ability to gradually monetize this in a sneaky way, but it is a bit concerning to see that the government is already cracking down, not just our government, but also the European Union is cracking down on companies like Google and Apple and in the past, Microsoft for doing monopolistic things like that, practices like that. So

Let's see, I believe they can monetize it over time, but there's nothing compelling right now that's gonna make me pay for a Siri plus AI subscription, especially when I already have ChatGBT, or if I don't have ChatGBT, if I know ChatGBT is better.

It's tough. I don't think that Apple can come out with something better than ChatGBT six months from now because Google has not been able to come out with something even close to ChatGBT over the past year and a half. And Google is a much bigger, more established company, supposedly with an even better AI research unit than OpenAI. So this is where we sit. These big legacy companies are not doing well, but we can go ahead and wrap up. Any final comments on that before we wrap up?

Kai (40:56.297)
Yeah, so.

Kai (40:59.741)
No, those are great comments. I appreciate everyone enjoying this episode. Look forward to the next few next episodes. Check out our last week's episode where we talked about we talked about previous A-net SMCI and then TSM. TSM has shown some growth off their 21-day moving average now or has increased off the 21-day moving average. James is a big hitter player obviously down on Apple or I'm Apple is at a discount right now. I'll buy some Apple.

James (41:20.734)
Nice bump last week. Yeah.

Kai (41:29.037)
currently the biggest drop in Apple we've seen one of the biggest drops this year from what 177 to 178 to 170 so Apple potentially had a good time to buy and I look forward to the next few weeks.

James (41:29.282)
Yeah.

James (41:42.462)
Absolutely. Thanks, Ryan. You know, just in closing, from what I hear via experts on the street, this lawsuit has no teeth. From what I understand, the lawsuit is pretty bogus and probably will not affect Apple in the long run.

Kai (41:55.933)
Well, it sounds like if they're using things like when the CEO told a kid that he was trying to send his grandmother a picture on his Android and he said buy an iPhone, I mean that has no teeth. So, Apple's got great lawyers, that's all I can say. I'm sure they can pay for really good lawyers.

James (42:16.25)
might be more powerful in US government. Thanks for listening to our podcast. Please give us a rating review or on YouTube, a like or comment. We'll be back in the next episode to cover more AI stocks. You can find all our holdings and trades at investingintel.ai. Thanks so much, Kai.

Kai (42:30.452)
Thanks, James.