Disruption or Interruption?

February 2023

Steve Jobs first revealed the iPhone to the world on January 9, 2007. The phone blew away consumers and quickly became Apple’s most successful product ever. There have since been 2.2 billion iPhones sold and Apple has become the world’s most profitable company.

ChatGPT is being hailed by some as an “iPhone moment” for AI. Like the iPhone, ChatGPT has brought a new piece of technology to the forefront of the public consciousness. One may also compare the release of ChatGPT to the moment IBM’s AI platform Watson beat the world’s best “Jeopardy!” player on February 16, 2011. IBM’s former CEO Ginni Rometty proclaimed that Watson would go on to change the world forever, diagnose cancer, and even create new industries.

While this was undoubtedly a giant leap for man (machine?) kind, Watson’s future didn’t pan out according to Ginni’s vision, with most people not knowing what Watson even is. IBM stock has returned just 12% including dividends since.

Whether Microsoft’s ChatGPT will pan out to be another Watson or another iPhone is the trillion-dollar question – a question that investors are losing their minds over. The success of ChatGPT, naturally, will depend heavily on the competitive dynamics of generative AI platforms over the next decade. Since the launch of ChatGPT, investors have been scouring markets for the next big AI platform. Pureplay AI stocks like BigBear.ai and C3.ai have seen their share prices balloon as much as 529% and 111% respectively since the launch of ChatGPT on November 30, 2022.

However, the majority of AI development is centred around US tech giants, with particular focus being on Google’s ChatGPT competitor, Bard. With aiding search engines such as Google and Bing being obvious applications for generative AI, investors are seeing the AI tech race between Google and Microsoft as imperative to the long-term success of these companies. This was highlighted on February 9, 2023, when a factual error made by Bard in an ad sent the stock plummeting, wiping $100 billion from Google’s total value. Whether these share price moves are reasonable or not, one thing is certain, the AI growth stories of tomorrow are making the valuations of today.

Folklore Ventures and Cut Through Venture’s State of Australian Startup Funding report for 2022 has been released. Unsuprisingly, it was found that VC funding during 2022 was down off the intensely hot 2021 year. $7.4bn was raised across 712 deals in 2022, down from $10.6bn across 731 deals in 2021. This decrease should be seen as more of a normalisation than a depression, given 2021 was a record year for valuations fuelled by unprecedented monetary and fiscal stimulus. According to the report, deal activity remains well above 2020/2019 levels of $3.1bn and $2.6bn respectively.

Climate tech appeared as the sixth most funded sector in the report and was by far and away the sector investors were most excited about. Since 2021, more than 130 climate-focused funds have been started globally, with nearly $100 billion in assets according to CTVC data. The continued growth through 2022 in climate tech funding highlights how integral new technology is to successfully bring the world to net zero, with 93 percent of the global GDP being covered by “net zero” pledges.

AI appeared as a top 5 sector investors are most excited about for 2023. Interestingly, the other four sectors investors were most excited about were also included in the top six most invested sectors in 2022. AI, on the other hand, was the 18th most funded sector. This perhaps represents a disconnect between investor demand and founder supply for AI start-ups in Australia, at least during 2022. 2023 has already seen a $5m capital raise announced for the development of a Generative AI couch ‘Marlee’ by professional coaching start-up Fingerprints for Success. It is likely no coincidence that the timing of this project comes only just after the release of ChatGPT. This year will likely be pivotal for AI investing and it will be interesting to see whether Australian start-ups will successfully leverage the spotlight placed on AI by investors.

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