I got a great question from “M” this morning. Copying his question and my reply here. Let me know what you think at IR@DeepKnowledgeInvesting.com or feel free to post your thoughts in the comments to this piece.

From “M”

First, you’re really putting out great stuff, and obviously, the input behind it is extensive and deep.

My question/thought about AI: The “AI companies” (e.g., Nvidia) report astounding revenue growth which directly supports the corresponding increase in share price. Demand for what they are selling continues high. What I don’t see in discussions about the industry is whether there is corresponding growth in the “end users” of AI.

That said, I can report that the Big Law firm I work for has really ramped up incorporating AI into how work gets done. The AI companies that we’ve engaged provide strong support to make sure we’re getting the most of it. I have no idea what the cost is, but we have a few different companies working with different departments.

My response:

Great to hear from you. I’m back in Westport through the end of the month so would be nice to get together in person if you’re available.

 

This week’s 5 Things ( https://deepknowledgeinvesting.com/5-things-to-know-in-investing-this-week-the-nvidia-pc-issue/ ) addresses some of your question. But a quick summary can be helpful:

 

• OpenAI is in trouble. They’ve already cut spending plans by $800MM (seriously) and still have $600MM of commitments. I have no idea how they’ll meet that lowered commitment and now, they’re losing share.

 

• Anthropic has massive real revenue growth. Their annual run rate is now tens of billions of dollars. They’re getting about $1B a month from both Google and SpaceX alone. The company will be profitable in 2Q although that’s more of an accounting sleight of hand than it is a sustainable trend. (Note that Anthropic made no effort to hide this. The accounting seems to be accurate and they gave clear public guidance that 2H profitability will turn to losses. I see no management malfeasance here.)

 

• Microsoft has had difficulty getting corporations to use Copilot. Part of that is office workers generally need AI to be agentic (capable of executing instructions like sending an email or buying a plane ticket) and that capability is currently (but not permanently) weak. I’ve done a lot of research calls in the space and I’m told the other issue is that Copilot is based on OpenAI (ChatGPT) technology which has horrible corporate guardrails. As someone who’s used ChatGPT extensively in the past year, I can confirm it’s terrible in this respect. The corporate guardrails don’t work and at times, can be both inappropriate and racist.

 

• Corporations have been telling employees that they’ll be evaluated based on their use of AI. It’s led to two problems. People are using AI in ways that hinder their own efficiency. They’re taking 30 minutes to do something with AI that they could do alone in 10 minutes. But they’re being judged based on how much AI they use so they’re doing it anyway. (Again, based on my personal experience, I can confirm. Using AI for many tasks takes longer than just doing it yourself. DKI interns can fix a graph themselves faster than I can using AI.) This is also leading to massive token usage and companies blowing through budgets 3x faster than expected. Look for announcements from corporations that say they’re curtailing use of AI for budgetary reasons in 2H ’26. Again, this week’s 5 Things discusses this topic in a couple of places.

 

• Your TL;DR version:  The stock market is pricing in unlimited growth. Corporations are pricing in skyrocketing expenses. I expect continued demand for chips from Nvidia, AMD, and Intel, and also expect more careful corporate use in the future. One trend worth watching is a shift in AI to “edge computing”. That’s just a fancy way of saying that instead of all calculations being done at a datacenter, more of the computing power will be handled by your own computer. I recently bought a new laptop and it’s capable of running an LLM on-device. There are multiple reasons why you’d potentially want to do that:

 

• • Running an LLM on your own device allows more customization. I know people who have customized models, personalities, and capabilities of their cloud-based LLMs which then got destroyed by a corporate update. Runing your own model means you keep what’s working for you.
  • Running an LLM on your own device allows more privacy. Many people use AI for sensitive business analysis and I’m reading that a large number of people are using these models as personal coaches or therapists. Others use them for personal medical analysis. How much of that do you want on OpenAI’s servers?
  • Running an LLM on your own device allows you to use AI when you don’t have internet access. This one isn’t a big deal if your AI usage takes place at your desk in an office. It would be a benefit if you travel constantly and are often on planes (as I am).

 

• I’ve done a lot of work analyzing and understanding the space. There are multiple people on the DKI Board of Advisors who are building in the space. One is running his own LLM to analyze and predict energy prices. Another has an app that is helpful to people suffering from age-related cognitive issues like Alzheimer’s. A third has a new service that uses AI to help attorneys analyze legal filings. It also can be used to draft documents. They’re all in the NY/CT area and I’m happy to make introductions if you’d like.

 

Thanks for the great question and I hope to see you before I start traveling again.

 

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