At the end of last year, Fat Tail initiated a big project.
And I was assigned to head it up.
It’s our considered take on which speculative Artificial Intelligence stocks might rise to large-cap status in the next few years.
The ‘Megatrend of Megatrends’, as Blackstone calls it.
Or from InvestorPlace:
‘It will create passageways to sweeping, even mind-blowing, change.
‘But as it does so, it will disrupt the status quo and leave behind the wreckage of dated technologies and hollowed-out industries.’
We’re an independent investment research crew.
But we largely held back on jumping on the bandwagon in ’23.
Why?
Well, we wanted to get it right, for a start.
We wanted to give you thoughtful, non-obvious ways in.
And, in all honesty, we’re wary of the mania of crowds. Always have been.
However…
It’s clear to most of us here at Fat Tail this megatrend of megatrends is not going anyway.
And that SOME small stocks which 99.99% of people have never heard of…WILL rise.
This coming Thursday, we pull the trigger
on five bets
On that day we release Lock. Build. Explode.
It’s the wildest project I’ve ever been involved in.
It’s fun, but also eye-opening.
You’ll learn some stuff I’m sure you didn’t know.
And that’s saying a lot, considering AI has been EVERYWHERE for 18 months.
Even if you’re simply AI-curious, make sure you look out for it.
As you’ll see, we’re kicking things off with five rather intriguing, little-known plays on different emerging areas within AI.
We’ll likely be adding significantly to this portfolio as new intersects and opportunities emerge.
Before you view what we have for you, though…
A few warnings
First the obvious one.
We’ll be talking exclusively about small capitalisation tech stocks with AI exposure.
Emphasis on small.
All small caps are risky, due to higher volatility and price fluctuations.
Here…and we must admit this…we’re operating in an investment frenzy climate.
So that adds an extra layer of risk.
So don’t go near the plays we’ll be shining a light on this Thursday with money you’re not prepared to lose.
So, that’s the general warning. Seems obvious, but I need to stress it before you dig into what we’ve found here.
I also have a wider caution for you…
Not every stock with a whiff of Artificial Intelligence about it is necessarily a good buy.
That’s the ‘frenzy’ thing I’m talking about.
SO MUCH money is slushing around here already…and so much more is coming…that it gives space to…pardon my French…shithouse companies getting way more attention than they deserve.
As the trend crests, and more eager investors rush in for a piece of the action…
…that means some bad companies will seemingly be good investments and get attention…at least in the short term.
But, ultimately, flame out.
Think back to the dotcom boom.
This is a big reason why we’re working on Lock. Build. Explode.
As well as looking out for opportunities, you need to be aware of the traps.
Like…
Flimsy use-cases
Keep an eye on this.
AI players and edge devices looking for mainstream penetration from 2025 to 2027…but with no actual use cases.
What is a ‘use case’?
Basically a new business idea that solves a REAL problem and generates value.
When a trend like this flares — lots of stocks big and small get attention that don’t have actual use cases.
As I just mentioned, the dotcom boom.
There were dozens. Stocks that blipped up massively and temporarily, then nosedived.
Because they were ‘found out’ by the market. In the end, after all the hype, there was no business model.
If you study the history of tech collisions, you can see patterns and common characteristics.
AI is not the dotcom boom.
Not yet, anyway. But you still need to be on the look-out for AI versions of Pets.com, Webvan.com, Floorz.com and Kosmo.com.
Some AI stock valuations are ‘going nuts’, Cisco’s CEO just said.
Even the Nasdaq’s head just warned: ‘When it comes to AI, they’re just afraid they’re going to be left behind again.’
So there’s a FOMO aspect here you need to be wary of.
Everyone’s battling for an edge in this phase in 2024.
Both the companies, and the investors.
You need to make sure there’s an ACTUAL EDGE with every stock you punt on.
Beware the ‘renamers’…
When tech collisions like this happen, sly companies rename themselves.
Just to get an unearned whiff of the zeitgeist.
Long Island Iced Tea Corp was a beverage company that renamed itself to Long Blockchain Corp in 2017 when blockchain was surging in popularity.
The name-change briefly caused the share price to triple.
It’s now delisted. Zero return.
Heads-up: in the next few years, established brands will try the same tactic.
C3.ai has been one of the big beneficiaries of phase one of this trend.
It was founded in 2009.
In that time it changed its name to C3.Energy (to take advantage of the renewables bubble) then C3.IoT (to exploit interest in The Internet of Things).
So this is a pattern.
Rebranding just to latch onto AI.
Cynical and opportunistic?
You could say that!
It’s not as bad yet as the dotcom boom, but be wary of serial renamers.
Excessive cash-burn rates
Loads of dotcoms at the start of the Internet collision spent heavily on advertising, promotions, technology infrastructure…
…BEFORE having the revenue to support it.
Causing rapidly dwindling cash reserves.
2023 was the year AI finally blew people’s socks off.
2024 and 2025 will be years of expectation management.
But if you pick the right small stocks in these years…with the right utility…you stand to come out massively ahead by 2030.
Make sure you pinpoint companies with some moolah to ride out the volatility.
No business plan or model
You should think twice about buying stocks that are rushing to adopt the system enterprise-wide without testing first.
Apple is probably an OK bet long term.
But it’s so big it won’t make you exponential gains.
And it’s even at risk of losing ground soon.
Apple famously runs a ‘closed system’.
But other machine learning systems are going to start cutting their lunch.
70% of all Apple’s revenue is generated from Chinese factories. There’s all sorts of bad stuff brewing there.
We predict 2024/2025 will be nowhere near as good a time to be an Apple shareholder as 2023 was.
Same goes for Adobe…
Another strong first-phase AI runner.
But the Gen AI overhype has exposed them to at least a short-term correction.
TuSimple is a smaller-scale example of AI overreach.
US-based trucking company. Tried to step out and own the collision of autonomous trucking and AI.
But level 4 autonomous driving is still miles away.
It’s not nailed down.
TuSimple was once a future AI hero and Nasdaq darling. But it’s just announced it’s exiting the American market to focus on Asia.
They IPO’d at $40.
The last time I looked, TuSimple shares were trading at 33 cents.
And they just declared plans to delist entirely.
So I hope you appreciate my transparency here…
There are some serious red flags you need to stay on-point with if you’re going to speculate on the stocks we’ve selected for you.
Do so with your eyes wide open to the risks.
You could lose money here.
But, on the flipside…
AI is going to create some HUGE small stock winners.
Out of nowhere.
Provided you’re aware of all the risks outlined above…
…I think you’re going to bloody love what we’ve landed on here.
Watch your email inbox for Lock. Build. Explode.
It should be arriving late morning this Thursday.
I’ll see you then!
Regards,
 |
Callum Newman,
Head of Small-Cap Stock Analysis, Fat Tail Investment Research
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