The Amazons and Googles of AI are not hiding in plain sight

Friday, 15 March 2024

[5 min read]

Dear Reader,

A question for you…

Do you know which company commercialised the steam engine?

Think about it…

It must’ve become a global behemoth conglomerate, right?

It would’ve dominated the Industrial Revolution’s profits and turned early investors into the first millionaires.

But I bet you can’t name the company…

Which shareholders were made outrageously rich on the back of that invention which changed the world?

They must’ve been the Elon Musk of their day. Perhaps their ancestors are still living off their trust funds today?

The thing is, I can’t name them either. And I bet you can’t. And I suspect it’s because they don’t exist…

The inventors of the steam engine did not grow absurdly rich on the back of their planet-changing invention.

And the company they formed is not exactly a household name. Perhaps because it doesn’t exactly roll off the tongue as easily as “Google” or “Nvidia”.

It was called the “Proprietors of the Invention for Raising Water by Fire”. No wonder it struggled…

In the end about 600 so called Newcomen Engines were built and used across Europe, mainly to drain coalmines of water.

And that’s the first big hint. The invention made the coal mine owners rich instead of the steam engine’s producers. Back to that in a moment.

James Watt, whose surname you might recognise, came up with an efficient enough steam engine to trigger the Industrial Revolution and bring Great Britain’s industry into …power.

Watt and his company weren’t exactly enriched by the invention and patent. They got stuck in legal battles over the patent’s enforcement instead.

But let’s get tot the point…

The Googles and Amazons of the steam engine were not its inventors

While few know the names of those who invented or commercialised steam engines in and of themselves, we all know the names of those who figured out how to actually use them in a line of business. The people and firms who harnessed the steam engine to do their customer’s bidding, rather than just pump water around. Names like Rockefeller, Carnegie, Morgan and Vanderbilt, for example.

People like Newcomen, Savery and Watt incorporated what should’ve been the most profitable companies in the world up to that time.

But they failed to make much money. And so we don’t know their names, nor their companies, let alone their missing fortunes.

The shareholders of “Proprietors of the Invention for Raising Water by Fire” missed the boom.

Shipping, coal mining and the railroads were the robber baron’s industries. It was all about who figured out how to use the new tech that actually profited.

Profits from AI will follow the same fate

Do you know who invented the internet? Did they get rich? Or do we revere those who founded companies that turned the new invention into something useful?

The money was in software and hardware, not “the internet”. The money was in using the internet to create a global shopping centre like Amazon’s.

How many computers would we have today without the internet? How many social media companies?

Sometimes, entirely new industries are born from new technologies becoming viable. Other times, they revolutionise existing businesses. It probably doesn’t matter to the investors who buy in. They get mighty rich, either way.

Where are the Googles and Amazon’s of AI hiding?

That’s the mission my old friend Callum Newman is now on. He wants to figure out which industries can be disrupted by AI and which companies have figured out how to profit from that disruption.

If he can get it right, his readers should be positioned to benefit from how AI changes the world.

It’s easy to forget the lessons of history and presume that AI’s profiteers will be the companies that are driving AI itself. They have been so far. But I suspect those investing billions of dollars and countless hours into the tech are in for a rude surprise.

In this presentation, Callum likens it to the dawn of the computer age. Back then, nobody had a use for the new tech. As the President of IBM said in 1943, ‘I think there is a world market for maybe five computers.’

And yet, today…

Anyway, the fortunes were made by those who figured out how computers could be used, not those who invented them. Indeed, Alan Turing met a rather grizzly end…

Companies like Amazon and Google became globally dominate corporations on the back of computers. But not by making them. Indeed, IBM was eventually shouldered out of that business.

So, who are the Amazons and Googles of AI? You won’t find them at the forefront of the AI revolution. You’ll find them in industries where AI can be utilised to radically improve the lives of customers. You’ll find five of Callum’s ideas here.

Until next time,

Nick Hubble,
Editor, Strategic Intelligence Australia

Nick Hubble found us at Fat Tail Investment Research in 2010 after a stint inside Wall Street’s most notorious bank, Goldman Sachs, during the 2008 GFC. That’s where he saw the true nature of the investment banking business. Since then, he’s been the editor of the Daily Reckoning Australia and the UK-based Fortune & Freedom and Gold Stock Fortunes.

He’s delighted to work as Investment Director and Editor for Jim Rickards’ Strategic Intelligence Australia. Here he helps turn Jim’s big-picture views into specific actionable advice and ideas for Australian investors.

[3 min read]

Finally, Joe Biden is going to tackle inflation in the time-honoured way of despots and crackpots everywhere. CNBC:

‘President Joe Biden will launch a new strike force jointly led by the Federal Trade Commission and Department of Justice, to tackle “unfair and illegal” corporate pricing, which he blames for consumers’ continued high costs of living.

‘The FTC and DOJ have been among the central enforcers of Biden’s regulatory agenda over the past three years.’

In other words, price hikes don’t come from the Fed’s zero interest rate policy (ZIRP) nor from their stimmies, deficits and money-printing. High prices are the fault of evil, greedy corporations. And now, Team Biden is going to do something about it.

‘Uh…like what?’ you might want to know.

Easy. It is going to pretend that it knows what a ‘fair’ price should be. And the saintly and all-knowing feds are going to impose their will on those SOBs in the private sector.

Wasting our time

Of course, the SOBs will always want to charge as much as they can get away with. What stops them is not the price posses of the federal government, but competition. You either compete on price or on quality, usually both. So corporate deciders are always looking for ways to cut prices…not raise them. That is how they hope to keep their customers.

But no need to waste our time explaining these things to the Biden Bunch. If there is a lamb left unsheared in the Republic, they go after it…eager to get more wool to pull over voters’ eyes.

We asked yesterday, why does a good system degenerate into a bad one…why does government grow, becoming less democratic, more incompetent and more tyrannical?

You might as well ask why doesn’t tomorrow turn into yesterday? Or wine turn back into grape juice?

Why doesn’t the president just ‘walk across the street’ …and tell Congress: ‘Enough is enough. No more deficits. That’s it.’?

Outta shape

You see an old man, bent, shuffling…you might say to him: ‘Just straighten up and walk normally.’ But he can’t do it. His muscles …his bones…his brain – all have taken a new shape. They can never again be what they were.

And the US has aged…and matured, too, along with its deciders. Bent by time, now the voters elect Biden or Trump, not Jefferson or even Eisenhower. And Joe Biden is so practiced as skirting the truth, he can’t do anything else. Yes, greedy corporations cause price increases…of course they do. Yes, the firepower industry needs more money to protect our democracy, of course it does. And don’t even think about trimming Social Security, Medicare or other ‘entitlements.’

“Not on my watch,” said the president on X yesterday.

It’s a shame Biden doesn’t have an older, wiser brother. Before his State of the Union Speech last week, he might have talked some sense into him:

“Joe. This is your last chance. Your career is almost over. You can go out as a washed-up hack. Or you can go out there and tell the voters something important. Stop carrying water for the special interests who want war and deficits. Stop this mumbly-fumbly double talk. The US can’t afford to keep spending money this way. If it doesn’t make a major course correction, it will soon be as washed up as you are. Tell the truth. Americans will be so shocked and delighted, you might win another 4 years. And even if you lose, you will be remembered, and honored – like Eisenhower – for saying what needed to be said. Go ahead. Give truth a chance.”

Nothing at All

And so, perhaps when the fateful hour arrived, his mind clear…his aim sure…Joe Biden might have given it to the public, straight. Unadorned by mendacity. Undiluted by wishful thinking. And unabridged by lies:

“My fellow Americans, I don’t have time for a lot of BS. So, here’s the story. If we keep spending money the way we’ve been spending it, we will go broke. Of course, there are a lot of people who don’t care about that. The money is headed their way. They’re building their mansions and stocking their bank accounts, at your expense. And the only way to stop it is just to draw a line. I can’t haggle over every line item. Besides, my job is not to protect the special interests…it’s to protect the general interest...the national interest. My job is to make sure we don’t spend too much. So, if I am elected to serve you for 4 more years – and yes, I know I don’t really deserve it – balanced budgets will be non-negotiable. No more deficits. No more money printing. You gentlemen and ladies in Congress…you decide what to spend money on…and send me a balanced budget. I’ll sign it.

“Otherwise, don’t bother to send me anything at all.”

Regards,

Bill Bonner,
For Fat Tail Daily