How AI companies thrive on the promise of potential

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Hola! Welcome to another mid-series special 👽

Let's start from the top.

Tesla

Tesla the automaker (EV) company is worth more than its next 10 competitors combined! Valued at $1.02 trillion, well as of 2021 you can read more details here. To put this into context, Tesla sold about 936,000 vehicles in 2021, while Toyota only one of the 10 competitors sold over 10 million vehicles valued at $256.65 billion.

Today Tesla is valued at $623.06 billion and sold about 1.8million vehicles last year. Toyota sold over 10 million vehicles last year and is valued at $228.44 billion today.

We can see that Tesla has just a very small pie in the automaker industry, but it is valued astronomically higher than all of them. Tesla was valued more when it sold less than 1 million vehicles than when it sold 1.8 million vehicles.

Why is Tesla not valued as other automakers?

The answer is Elon Musk. You see Elon Musk understands more than most the power of the promise of potential. Tesla first thrived on the promise of the potential of EVs(Electric Vehicles) which are seen as the future of vehicles, as most companies try to move from using fossil fuels. But as far back as 2015 Elon Musk has been promising FSD(Full Sell Driving Car) capabilities for its vehicles, and other features like the possibility of making your car serve as a commercial vehicle to earn money for you when you are not using it, you know due to FSD and other tech features they promised.

Tesla thrived on the fact that it projected itself not just as an automaker, but as a tech company. The reason Tesla ballooned in valuation in 2021 is all due to Elon Musk's promises of special AI features way ahead of its time for Tesla vehicles. And just like some other tech companies it managed to earn that astronomical valuation!

Elon Musk understands this, investors always want to invest in the next big thing, and the promise of the next big thing, even when one has no idea how to achieve it, the promise of potential is great news for investors. Take nothing from Elon Musk's brilliant execution, genius ideas, and delivery.

So that's how Tesla thrives on the promise of potential, in fact in Tesla's annual meeting this year, Elon promised to focus on AI and producing a Robotaxi which is a driverless taxi, you can read more here. Elon always knows how to thrive on the promise of potential, even if the delivery is not feasible.

Humane AI Pin

Humane cofounders Imran Chaudhri and wife Bethany Bongiorno former Apple employees started work on the Humane AI Pin in 2019. They launched this year to what is possibly the worst product reviews in the world, MKBHD sums it up here. I have written about the failure of this product. I am writing about this here because the Humane founders were able to raise over $200 million before product release, from the top investors and founders in the world like OpenAI CEO Sam Altman and Salesforce CEO Marc Benioff.

How were they able to raise that ridiculous amount? The power of the promise of potential. They sold their idea as the next best thing since the iPhone, and of course, powered by superior AI. The rest is history, Humane is currently having more products returned than sold, just a few months after launch, and is rumored to be trying to sell the company you can read more here.

Humane was able to raise $200 million because of the promise of the potential of AI.

Open AI

The poster child of modern AI, Open AI makers of the famous ChatGPT is reported to lose about $5 billion this year alone, you can read more here. While ChatGPT is doing very well, and I understand that a company losing money does not mean anything bad, we know the story of Amazon right? losing money for about 20 years and next thing bam! they are unbelievably profitable.💰

Now Open AI is valued at $80 Billion, almost entirely based on the promise of potential, even though ChatGPT currently boasts over 180 million users with about 600 million monthly visits.

OpenAI is having some strong competition from Meta with their Llama large language model, and Google's Antropic as well, their first mover advantage is starting to diminish.

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There is a thin line between thriving on the promise of potential and outright fraud, take the story of Theranos for example.

Elizabeth Holmes who founded Theranos promised investors that her company could perform a lot of different patient's physiology tests using just a drop of blood in minutes and at a fraction of the cost. She raised hundreds of millions of dollars, and at one point was valued at $10 billion.

But it was later discovered that she faked demos she showed people and actually had no idea how to achieve her promise. Elizabeth is now serving about 11 years sentence after being found guilty of defrauding investors.

Investors are willing to take risks to invest early in companies that have a high potential to be huge in the future.

I believe we've heard the story of Ron Wayne, the man who sold his 10 percent share in a small startup for $800 and another payment of $1,500 just a few weeks after the startup was founded. That startup will later become Apple Inc valued at over 3 trillion dollars 😁. Ron Wayne is still alive today, he says he has no regrets though 🤷‍♂️.

Also, there is Steve Ballmer the former Microsoft CEO who laughed at Steve Jobs' first iPhone and said no one would buy that device, you can watch a clip here. A few years back Ballmer made an interview where he basically said sleeping on the iPhone was his biggest regret you can watch it here. 😁

So you can see how tricky it is for investors and tech companies right? That's why the trick of the promise of potential will always thrive in the world of investing. Because you don't know whether you are investing in the next iPhone or the next Humane AI Pin. So you might as well invest in them both right?

Recently, we have seen tremendous hype around technologies like blockchain, web3, metaverse, NFTs, and so on. None have lived up to the hype.

But with AI we can see pure substance already and it might take some time for us to find the right applications for it. You can read my post on AI the feature and AI the product here, where I tried figuring out the best application of AI.

I'll round up by dropping this YouTube video by Neetcode on the AI hype, you can watch it here.

I believe now we understand very clearly, how AI companies thrive on the promise of potential. 🎤 (mic drop 😎)

Hope you enjoyed this piece, I enjoyed writing it 🤗.

See you in the next one 👽

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