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Navigating the AI Frontier: Clues From Private Markets

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The AI Revolution vs. The Internet Boom

Many similarities exist between the internet boom of the late 1990s and the AI revolution that is taking place today, including blistering growth, soaring stock prices, and lots of hype. However, significant differences exist as well. For example, Wall Street and the biggest AI winners thus far are already proven companies with massive cash hoards and well-established businesses like Microsoft ((MSFT - Free Report) ) and Alphabet ((GOOGL - Free Report) ).  At the same time, the AI buildout has buoyed the stock prices of these companies and led to robust earnings, it’s difficult to move the needle on a multi-trillion-dollar business like GOOGL or MSFT.  Furthermore, many of these companies have broad and diverse businesses that stretch beyond AI.

Small Innovative Pureplay Companies Will Offer Asymmetric Opportunities   

Several data points suggest that the AI boom is in its 1995 moment rather than its 1999 moment. For instance, stock valuations are relatively inexpensive (at least compared to 99’), and the Nasdaq 100 ETF ((QQQ - Free Report) ) isjust now breaking out to all-time highs. Still, the most significant divergence between then and now is the IPO market. In 2023, there were 154 IPOs on the U.S. stock market. Conversely, in 1999, a staggering 473 IPOs went public. Quite the difference!

IPOs are the Lifeblood of Wall Street

IPOs, or Initial Public Offerings, serve as the lifeblood of the stock market by infusing it with new, publicly traded companies. These offerings provide opportunities for investors to buy shares in promising, often innovative enterprises, fostering market growth. In the late 1990s, the IPOs provided the most significant gains because many agile, had blistering growth expectations, and were pure plays in the space.

What Should Investors Do?

Obviously, investors cannot change the fact that there are few pure-play AI avenues on Wall Street. Presently, they can invest in the aforementioned dominant big tech juggernauts.

“By failing to prepare, you are preparing to fail.” ~ Benjamin Franklin

Nevertheless, the best investors prepare for and study non-public companies ahead of time. They watch early-stage innovators early so that they fully understand the industry and can pounce when the opportunity comes.

Propense.ai: A SaaS Platform Leveraging AI Technology

An example of an AI start-up worth watching is Propense.ai. Today, Propense.ai announced a successful seed funding round. The Miami-based company combines AI technology with data science, user psychology, human behavior, and industry insights to anticipate client needs. Propense.ai streamlines the sales experience for accounting and legal professionals by providing them with highly probable cross-selling recommendations for existing customers, making it the first platform of its kind to maximize revenue opportunities for professional services firms.

In recent comments, Propense.ai CEO and Co-Founder Timothy Keith said, “The most successful professional service firms are actively engaged in adding service offerings to help their clients, but often struggle with educating their teams on when to offer new services. Propense.ai solves this challenge, elevating client satisfaction while also driving revenue. Behavior is one of the most difficult factors to change in the workplace, especially when sales professionals are expected to cross-sell services they don’t understand nearly as well as their core lines of business. That’s where Propense.ai and its revenue automation capabilities come into play. Using generative AI, accounting and legal professionals can propel new revenue by anticipating and supporting their client’s needs ahead of time.”

The best ideas are ones that solve issues. Propense.ai is an example of a company that solves the issue of employee education while adding efficiency and revenue growth. Though the company is still young, it already counts public companies such as public consulting juggernaut CBIZ ((CBZ - Free Report) ) as clients.

Takeaway

While the AI buildout is in motion, Wall Street and the AI industry have yet to experience the IPO frenzy that took place in the mid-to-late 1990s. Though many private AI start-ups still need to be bigger to enter public markets, I expect that will change in the coming years. In the interim, investors should take the time to investigate and study up-and-coming AI companies such as Propense.ai to educate themselves about the industry and prepare for the eventual influx of IPOs. These IPOs will likely provide the best opportunities because of their industry tailwind, high-growth potential, and asymmetric investment potential.


 


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