After Badgering Monkey about selling Crowdstrike $CRWD (yet again), Luke discusses the differences between Crowdstrike and Palo Alto Networks $PANW, two strong cybersecurity companies. But l can there only be one?
Monkey, meanwhile, wonders whether AI is going to disrupt everything, including SaaS companies like Crowdstrike, or whether certain mega-trends can overpower the impending disruptions.
We also discuss the difference in mindset required when investing in best-of-class businesses with lofty valuations, and small caps that are much riskier but cheaper and with more binary outcomes.
Krzysztof offers his view on the recent Apple Intelligence announcements and why he’s pleasantly surprised about what he heard. Hint: privacy + AI are an essential combination, and Apple will finally give customers a reason to upgrade their phones. Perhaps the recent spike in valuation is justified?
Chapters:
00:00:00 Intro
00:01:02 CrowdStrike vs Palo Alto Networks
00:11:43 What does Luke look for in a good investment?
00:19:17 Apple Intelligence
luke_5_06-11-2024_111029
===
[00:00:00] luke_5_06-11-2024_111029: Hey, and welcome to the latest episode of Wall Street Wildlife with Christophe and Luke. We are talking about last week’s Apple AI announcement in today’s discussion. And I would also like to dig into a cybersecurity article I wrote comparing CrowdStrike and Palo Alto networks. If you want to hear about which of those two are my better buy, this is the conversation for you.
Christophe, you’re still in Italy, what’s happening?
[00:00:33] k_2_06-11-2024_121029: Cannolis are still being consumed, uh, Italian language is still being studied, and, uh, I like using travel to dig into some, uh, big picture historical narratives because my mind feels more open, you know, in a different way. World context. So right now I’m making my way through a very long book titled slouching towards utopia and economic history of the 20th century Uh, i’d like to talk a little bit about that
[00:01:10] luke_5_06-11-2024_111029: Very good. Well, before we get into those, then shall we dive into the meat of cyber security? Are you excited to hear which of these companies I prefer?
[00:01:18] k_2_06-11-2024_121029: Yes, and I have a very strong suspicion. I know the answer ahead of time,
[00:01:22] luke_5_06-11-2024_111029: Yeah.
[00:01:25] k_2_06-11-2024_121029: You know, I and and as you tell me more god when I look at the share price crouch strike it just pains me You know, it’s like Multiple thorns, not just thorns. I’m like, CrowdStrike was one of my favorite companies of all time.
The one I knew the most about and to have sold it and watch it, you know, keep going up. My God, it’s so painful. Don’t make that mistake again. Uh, dear listeners.
[00:01:49] luke_5_06-11-2024_111029: it may have been episodes five or six of this podcast where I specifically lambasted you for selling this particular stock.
[00:01:59] k_2_06-11-2024_121029: Yes, I remember your expression very, very clearly. It was grotesque and monstrous.
[00:02:06] luke_5_06-11-2024_111029: Well, let’s talk about why. Oh, and by the way, the reason the stock is up is, uh, subsequent to me writing that article, CrowdStrike has been accepted into the S& P 500. So notwithstanding everything else that in itself is, um, drives a lot of buying behavior as funds have to pick it up. So that’s giving it a nice extra sort of 10 percent or so.
Boosted the last few days, but coming back to the fundamentals of this country, but coming back to the fundamentals of this company, why do I like it so much? And it is one of my highest conviction investments. Um, cyber security ain’t going away. This is such an important investment theme. And even just a couple of weeks ago, at the time I was writing the article, there was a ransomware attack on suppliers to a number of UK hospitals.
Like you’d almost, you’d think that the healthcare sector, particularly directly impacting patients, you’d think that would be maybe morally. Uh, you know, set apart for hackers, but clearly not this stuff is fair game, just like commercial organizations. So they’re going after everything, which means all companies in all sectors have to have world class cybersecurity and CrowdStrike is up there as one of the leaders, as is Palo Alto Networks.
[00:03:28] k_2_06-11-2024_121029: I have a question for you about, uh, cyber security as a subscription service business model. So this might take us a little off course, but, but maybe not. I am worried about call it all startups. Yes. Uh, using that model because AI seems to be disrupting everything. Um, and I’ll talk a little bit more about that when I talk about Apple AI’s announcement.
Do you think cyber security is Um, specific enough, and maybe I don’t know what to write term is. Um, maybe it’s of the, um, it has this importance that do or die that that’s only the best and biggest. Will, uh, in a sense survive and lead the way so any startup kind of like Sentinel, uh, will have a much harder time making inroads on CrowdStrikes territory and that the whole AI sassy, uh, do it by the seat of your pants companies just won’t have enough, cachet to make it into cyber security. Do you see what I’m asking?
[00:04:47] luke_5_06-11-2024_111029: I do.
[00:04:48] k_2_06-11-2024_121029: In other words, let me actually rephrase that in one particular way. Is cybersecurity an exception to the upcoming commodification being brought forth by AI tools?
[00:05:00] luke_5_06-11-2024_111029: Well, no, but I would argue. That everything is being commoditized. Um, I would say like industry specific kind of light technology, stuff that’s kind of shallow, uh, probably will be commoditized stuff. You could ask an LLM or a point tool to build for you or to do for you, but something that requires deep capability.
And that’s probably a ton of examples, but cybersecurity is a good one. Um, I don’t see that being. disintermediated by AI anytime soon. And just to bring it to life with the way CrowdStrike operate their cloud native, essentially crowdsourced platform. If you’re part of, uh, like the CrowdStrike family, if you suffer a breach in real time, CrowdStrike learns about that and how to, um, remediate the problem, prevent the problem.
And then they, Essentially, make that protection available to all of their customers in real time, because that’s just how it works. It’s all kind of cloud centralized. You can’t do that with an LLM really anytime soon, right? Does that make sense?
[00:06:16] k_2_06-11-2024_121029: Yeah. Yeah, it does. I mean, it reminds me a little bit of why I issued a sell on Sentinel 1 way back. Uh, maybe over a year ago, because I mean, it’s reducing complex thing into a small talking point, but I kind of felt that it was too small to effectively compete against the now larger crowd strike and larger in this case being good because of the, the way.
Uh, AI network nodes, the bigger they get, the smarter they are. I don’t know if that makes sense. Like there’s a tipping point. It seems like, uh, with regards to cybersecurity, if it’s, if it’s built right from the ground on up the proper AI way,
[00:07:04] luke_5_06-11-2024_111029: And what you’re referring to there essentially is like a network effect. Every customer using CrowdStrike makes the ecosystem more valuable for every other customer because it’s like another attack surface that could be out there being the first threatened, um, customer and resulting in all other customers being protected from that type of attack.
Um, if CrowdStrike only had a few thousand customers, the, uh, the protection that comes at least from being part of this sort of crowdsourced cyber security. Uh, solution is much reduced than if they had millions of customers, which they do.
[00:07:44] k_2_06-11-2024_121029: Yeah. So can I ask you about Palo Alto? Uh, I never did any deep dives into them. You have now, but my understanding is that they are, uh, in the sense cobbled together from multiple different kinds of cybersecurity offerings. And that in theory, the sum of the parts should, should be great. Uh, the, the, What am I trying to say?
Is it the sum of the parts? Yes, or that the whole is greater than the sum of the parts, but based on this cobble together thing, I don’t understand how they could compete with something as organically built from ground on up, like CrowdStrike and, uh, recently, right? The company was doing very, very well.
And I believe last quarter they had a very, shortfall in expected revenue. So can you catch me up on what I’m seeing? We’re not understanding.
[00:08:49] luke_5_06-11-2024_111029: Yeah. So the, um, the term that their, their CEO, Nick Eshaw, always uses is platformization, which is kind of a fancy word they’ve essentially made up. But what they’re really talking about is they’ve just got A mess of different disconnected tools that do different things like user security and firewalls and endpoints and, uh, secure access service edge and they’ve kind of bundled these things together by integrating them and they’re selling them as a platform, but there’s a little bit of smoke and mirrors there, essentially.
They are different tools that are kind of interlinked. Whereas CrowdStrike, um, is like a single agent you deploy once CEO of CrowdStrike, George Kurtz goes on and on actually about, it seems trivial, but I guess it is quite important. If you have a big infrastructure, you reboot. to install CrowdStrike. You literally just deploy the agent.
And if you’re running like a massive data center, it’s actually quite a big endeavor to plan down time or do like a staged reboot. So you can refresh your system with the latest software to make it available to customers without impacting availability. So CrowdStrike, it’s not an issue. You deploy the agent once if CrowdStrike themselves launch new capabilities when it’s in the cloud, that’s happening on the back end.
Um, so you don’t need to reboot to get those new capabilities. You essentially just sort of turn things on and off based on what you’ve purchased. If you wanted to install Palo Alto Networks solutions, uh, you’d have multiple things to install. There would almost certainly be some reboots. If Palo Alto launched a new product, you’d probably have to install that again yourself.
Um, I say probably because I have actually installed CrowdStrike on my home PC, just as a trial to try out. I’ve not installed Palo Alto. So, um, and, and my CrowdStrike experience was very seamless and very straightforward. So, uh, I kind of see the benefit. To the end customer.
[00:10:55] k_2_06-11-2024_121029: So what’s the book case for Palo Alto?
[00:10:59] luke_5_06-11-2024_111029: Well, it’s just a much more reasonable valuation for one. If we just look at that, if we look at it as an investment, so to actually approach that again, so kind of two things, they are the bigger, more mature company, so they have, uh, multiple times the revenues and the net income that. CrowdStrike does. So it’s kind of the incumbent.
It’s the big gorilla that CrowdStrike are coming after, but Palo Alto is still growing at a nice rate and it’s still, um, generating good levels of free cashflow. And then the other thing, if you just look at this as an investment, not as a, like as a customer of the company, then Palo Alto is a significantly cheaper valuation.
Um, so. Maybe if we bring this topic to a wrap up and I would like to point listeners, if you’d like to know more, I’d like to point you to the article I’ve published at 7investing. com. Um, which is on our front page right now around, uh, and I would like to point listeners. If you want to know more to the article I published at 7investing.
com, uh, the article is a tale of two cybersecurity leaders, um, essentially to bring this together, I do think they’re both good buys. I do prefer CrowdStrike. And if you’re a 7investing subscriber, I tell you exactly why I prefer CrowdStrike. Now, if you do want to go and read a bit more detail on the article behind our paywall, if you go sign up at 7investing.
com slash subscribe, With signup code or coupon code, cybersecurity, or one word, then you’ll get a free trial for a week. So you literally go sign up with cybersecurity, go read the article. And actually at the same time, you’ve got access to 200 plus. Other investment opportunities, deep dives, pre recorded subscriber calls, access to our discord, you know, go get stuck in for a week, immerse yourself, see if you think it’s good value.
Um, and we’ll be writing lots more articles from the team around this same topic, uh, in the future. So hopefully you get a lot of value out of that.
[00:13:19] k_2_06-11-2024_121029: Yeah, I think, uh, the membership to 7investing pays for itself via the conversations we have on discord. And it’s not just the advisors themselves who bring the value, but it’s the members who have become integrated into that community and, uh, it’s worth way more than, than the price of the membership.
[00:13:45] luke_5_06-11-2024_111029: Great stuff. Great stuff. Now, I didn’t want to bridge us from this cyber security chat into a topic. We’ve been kicking around for the last month or so. And it’s what do I look for in a good investment? And I thought, actually, CrowdStrike was a great opportunity just to pull out a couple of The other things I look for in any investment, if I’m judging whether it’s a good quality investment, a good company to add to my investment portfolio, um, so let me just pick up a couple of these.
And then, you know, maybe you’ve got pushback on some of them. I don’t know. Um, one is certainly access to a large addressable market. Like companies talk about their TAM, their total addressable market. To be honest, that can be smoke and mirrors and nonsense. It’s like an, it’s a goal that they’ll never get to, but it’s quite interesting because McKinsey put out some independent research.
It’s a couple of years old now, 2021. Um, but they forecasted, and I believe them, the cybersecurity market is going to 10 X. to one and a half trillion dollars of spend. So that’s such a enormous growth that I think you should at least look at that directionally as massive growth opportunity, massive addressable market for all companies, CrowdStrike, Palo Alto, SentinelOne, all of these companies will grow as that addressable market grows.
[00:15:09] k_2_06-11-2024_121029: Right. And, uh, uh, yeah, and as a point of comparison, for those following our King of the Jungle portfolio challenge, my, uh, my strategy right now is almost, you know, I wouldn’t say the opposite, but it’s, it’s not being seduced by total addressable market. It’s being driven by valuation. So as an example, while Luke has companies like CrowdStrike, which had this potential trillion dollar market.
My number one company, Coherus, I don’t actually know what it’s total addressable market is, but let’s call it something like 10 billion tops, right? 10 billion compared to 1 trillion is, is, is nothing. It’s just that Coherus right now is valued at about 200 million. So it has a potential 5X ahead of it or 10X if things go well, but it’s, uh, but it’s not a company I would ever feel.
Um, uh, like I could sleep well at night necessarily, and it can’t take over the world, and it’s playing in its small little niche, so it’s like more of a timely thing than it is this, I think, um, big long term opportunity out of which the majority of huge gains can be made. So, in this case, uh, the, the, the, the leverages on Luke side, you want a Big Tam.
[00:16:36] luke_5_06-11-2024_111029: Yeah, but I do want to caveat that again, um, often TAMs should be taken with Pinch of salt. Um, I don’t generally look at the TAM forecasted by companies because it’s often just kind of marketing nonsense from investors. But in this case, it’s just, it’s so big. Let me pick up one other, um, things I look for in a good investment, but I think is, um, Uh, unarguably positive for a company though.
And I think CrowdStrike is a really good example of this and it’s, um, essentially kind of efficient operations and the ability to, uh, increase, increase your operating margin. Uh, what, how that operates in CrowdStrike’s case. So if I’m a CrowdStrike customer, essentially the company sells modules. And if you’re a kind of starter customer with a really simple need, you might only be using five or six modules, um, but they have.
Over 20 modules, I believe now, and these modules essentially do have different capabilities and serve different aspects of your cyber security needs. Well, CrowdStrike have already built all that stuff, and so when you have a customer come along and buy a handful of modules to start, It doesn’t cost CrowdStrike anything.
They don’t spend any sales money or very marginal. I imagine to get customers to upsell themselves, customers see the benefit. And then they incrementally start using more and more modules. And then the number of modules used by customers is a metric that the company. Um, publishes for investors. And, uh, so essentially as customers buy more, CrowdStrike are getting more and more wallet share and it’s not costing them anything to get that wallet share.
It’s not like you have to spend marketing money to win the customer in the first place. Once you’ve got them, they essentially upsell themselves because the capabilities are just really compelling. And so we get this operational efficiency that comes out, this lead operating leverage as companies come on board.
And then they start to use more and more of this software stack that’s already been built.
[00:18:46] k_2_06-11-2024_121029: Yeah, that’s why I love that subscription as a service model. Compare that to say, one of my recommendations, Celsius Holdings, which sells, you know, smart, uh, water, energy, uh, healthy energy drinks. There is no leverage to be had. It’s you have to keep advertising. You have to keep putting the product in front of the people just because they bought a can today doesn’t mean they’re going to buy for tomorrow.
So it’s a massive difference in business model. That’s why the software as a service subscription service model was so lucrative and why, uh, Entirely almost my entire portfolio was made of those companies up into 21 before the major, uh, macro led drawdown, but it seems like for the best of the best companies that that model is going to survive. Well, I guess maybe, well, this, this is maybe where the gray areas, right? This is what we’re debating in a sense, like a company like CrowdStrike seems like it’s going to get better because of the large TAM, as you’re saying, and the. Uh, importance of the product. Whereas other others following on this, if you buy a little, you’re going to buy more, they still might not make it because of all the other forces.
[00:20:11] luke_5_06-11-2024_111029: Yeah. And it’s not to say that like non SaaS companies and companies that sell physical products are bad investments. They’re just different. It’s quite hard to compare. Uh, like Apple, you’re comparing apples and oranges here and Celsius might still be an incredible investment versus, Say Coca Cola or Monster Energy.
You have to look at companies really and compare within industry to understand what their advantages and disadvantages are.
[00:20:36] k_2_06-11-2024_121029: That’s right. But for this particular point, I think it’s a good example. Just the difference of why you. Why a company like Celsius has to keep working hard nonstop, whereas CrowdStrike gets to leverage their previous work.
[00:20:53] luke_5_06-11-2024_111029: Sure. Pretty good. Well, we’re going to bring it into a chat about Apple AI, but before we get there, I just want to drop a quick promo for ourselves. Um, we are still a pretty new podcast for only six months in, and, uh, we could use your help to get traction. Thank you to those of our listeners who have given us a review on Apple podcasts.
Thank you. If you gave us a star rating on Spotify, I just signed up for Spotify in the car the other day. So I’ve given us a star, a five star rating from my Tesla. Um, if you get a chance to do the same, we would most appreciate it. And if nothing else. It’ll make Christophe and I, uh, feel good about the fact that we actually are, uh, helping the world invest better, which is our mission.
[00:21:39] k_2_06-11-2024_121029: That’s right. We want to feel better about ourselves.
[00:21:45] luke_5_06-11-2024_111029: I woke up, I woke up, I’m going to share with our audience, I woke up at 2 a. m. and I sent this WhatsApp diatribe to you at 2 a. m. this morning about, uh, ways in which I think we could improve the podcast. So, uh, so we’ve got some ideas and we’re working on that, but if you’ve got ideas, like tweet us and let us know, uh, you can find me on Twitter at seven, Luke Hallard.
[00:22:09] k_2_06-11-2024_121029: That’s right. And I’m, uh, at seven flying platypus. So there’s the difference between the two of us. Luke is waking up middle of the night, sweating and anxiety. How could we make this podcast better? I’m sleeping through the night like a baby dreaming of cannolis.
[00:22:25] luke_5_06-11-2024_111029: Okay. As long as one of us is sweating the show, that’s, uh, that’s good enough. But you’ve, uh, you’ve been, uh,
[00:22:33] k_2_06-11-2024_121029: That’s right. At least one of us is putting in an honest day’s work. Yeah.
[00:22:39] luke_5_06-11-2024_111029: but you’ve, you’ve, uh, you’ve done your bit for today’s podcast. Cause you’ve been sweating the Apple developer conference, I guess, and immersing yourself in what’s coming out in terms of Apple intelligence. Um, I think this podcast goes out a week after the event and we’re just recording the day after, but when you tell us what you’ve learned so far, Christophe, what are your thoughts on how Apple intelligence is going to dominate the world of AI and large language models?
so much.
[00:23:06] k_2_06-11-2024_121029: Yeah. So I have a very positive on what they announced with a little bit of a caveat that I’ll point out. I’ll talk about at the end, uh, obviously AI is at the very beginning and it’s a tool that is, um, seems like it could be as powerful a thing as humans have ever created. And up to now, uh, it, it, hmm, I don’t know how to say this.
It’s been both. It’s been really astoundingly powerful and also kind of piecemeal and not integrated properly into our lives. It still feels like an adjunct. What I saw Apple talk about really thrilled me for two reasons. First and foremost, I’ll acknowledge that I’m a real fan of Apple, and I know you are not, Luke.
And I actually wonder if this might be a tipping point of sorts for you. The primary reason I’m excited is because Apple, I think, foundationally made privacy a core principle in the company. And I don’t know the inner workings of everything. And I’m sure there’s all kinds of moments or times when things have not gone perfectly and there have been breaches of trust, but I don’t know about them necessarily. And as far as Company ideology go I think I do believe that Apple takes privacy more seriously than maybe most others So what they announced? Essentially, is that they’re creating something called a private cloud compute that allows apples integration of AI to essentially live in a way on their servers where they never collect the data.
It’s just sort of, um, your own personal data goes where it needs to go. Answers the query that you put forth from it. And then. In the sense disappears, so it’s never living on some say, a W. S. Amazon server or on the Google server. To me, this is this is a major, major announcement. Uh, yeah,
[00:25:29] luke_5_06-11-2024_111029: And I think to be, to be clear around what we’re talking about there, I think we’re talking about on device, uh, language models. So I guess possibly not even like large language models, but these cut down models that can run locally on your phone. If it has a sufficiently advanced hardware with the right kind of.
Chipset. Um, and essentially it can be running the language model locally on device. So nothing gets shared back with a data center for it all to happen in the cloud where potentially your data is exposed.
[00:26:01] k_2_06-11-2024_121029: well, that’s the thing. I think Apple took care of both pieces of the puzzle one, right? The most of the work will be done on your phone. And it will require the newest gadgets. I mean, I’m sorry, the newest chips. So in that sense, uh, Apple is. From the perspective of Apple, the company is basically, I think, ensuring that people will upgrade to the latest phones because it will, this technology will require the most sophisticated chips to run it.
So that’s locally. That’s the piece you’re talking about. If it’s running locally, it has no need to go elsewhere. Therefore it’s more private and secure check. But Apple also announced that for tasks that do require the data, To take advantage of the larger servers, that too will remain private, and that data will never stay on the server where it needs to go.
So, both local and data, and on a server, get you the same result. Your data never really leaves. Um, never gets embedded elsewhere. That’s huge. I think that’s, that’s tremendously huge because of the, you know, all the dystopian possibilities of, of what cyber criminals can do with your data using AI. as
[00:27:22] luke_5_06-11-2024_111029: And I buy Apple have a long history of being very privacy centric. So I buy that that’s their aspiration.
[00:27:30] k_2_06-11-2024_121029: so let me ask you as a, as a somebody that is, um, not, that has refrained from entering Apple’s ecosystem because of their closeness. So, so to speak, does this. Potentially change your mind about switching to Apple if you know, let’s, let’s, let’s make the assumption that you take them at their word, uh, and that they do the job correctly as Apple tends to do.
Is this a selling point for you?
[00:28:05] luke_5_06-11-2024_111029: It is, but it’s definitely not enough of a selling point or an important enough point for me that it would switch me to the Apple ecosystem. This is too much. I don’t like about that. Not the least of which is the cost. Um, I mean, Apple are doing what Google are also doing. So Google has built Gemini. I don’t want to turn this into like an Apple versus alphabet debate.
That’s not the conversation we’re trying to have. Um, Google as well are integrating their own LLM Gemini into the Android assistant. I’ve now got it working on my phone, but it’s a bit, it’s a bit early. It’s a bit beta. Like for example, if I run. Gemini as the voice assistant on my phone. Actually, I can’t then control my smart home and my lighting and my gate and all that sort of stuff.
That’s supposed to work, but it’s just that they haven’t fixed it yet. So, um, clearly Apple are going in the same direction, uh, and they might get there first and they might have a better result actually, because they’ve now embraced like deep foundational level integration with, um, open AI, so like chat GPT.
[00:29:09] k_2_06-11-2024_121029: Well, that’s
[00:29:10] luke_5_06-11-2024_111029: an advantage. Sure. GPT is better at thumb stuff than Gemini is.
[00:29:14] k_2_06-11-2024_121029: that’s the other you’ll be. You’ll be intrigued by this. That’s I think the big talking point in the announcement was that chat GPT is going to be meaning open a eyes chat. GPT will be fully integrated with what Apple is now calling Apple intelligence, but they also mentioned that they will in the future integrate with other models, including Google Gemini.
So, um, I’m seeing this as all. All AI models will now be commoditized. And how do you take best advantage of all of these models? And I think what I’m seeing is from Apple that because they take their privacy, the most seriously out of any other company, they will be able to conglomerate all of these models into one platform that runs runs seamlessly.
And you won’t really even care whether you’re talking to Gemini or chat, GPT or whatever other future iteration. So that’s point one. But point two, that really got me excited. And this is because I saw, you know, the demos they showed, I was like, Oh, wow, this actually, it feels new. It feels powerful. Is that the consequence of having all of your data living on your own little call it private island is that the context of that data becomes significant to how the language models understand your own data.
So, for example, simple example is that let’s say you start using. Uh, the system for call it 2 weeks. It learns who your most important contacts are. It learns who mom is. It learns who Luke is. And all of a sudden you could start using natural language that that says something like, um, you ask a question.
What did Luke want to do next week? And then it’ll search through all your documents again privately. And then that there, that, that hard to describe it there will make sense because the context of your phone will make sense to the model. So, this is why the privacy and the context thing are so important and will work together.
It will require, I think, a closed private system to pull off without fears of being hacked, and Apple is the one to do it. So that was incredibly powerful. There were many, many examples of, uh, Apple’s intelligence taking advantage of all the, all the individual apps like your calendar, your text messages, your, uh, whatever other things we use, note taking apps, right?
And all of these apps basically will be resting on one model and therefore talking to one another in your own private context. To me, that’s a game changer.
[00:32:17] luke_5_06-11-2024_111029: It’s a game changer that, again, I don’t want to turn it into Android versus Apple, but that Android are doing as well, bringing together all of your data across all of your services, like maps, email, docs, everywhere to give you a seamless experience. Like probably as the end user, there’ll be, you know, the Android versus Apple flavor of these things.
But ultimately they’re all, they’re both heading towards the same place, which is essentially a fully featured. virtual personal assistant. What will be interesting, I think, is, because I do, I do certainly believe that the way Apple implement it will be more privacy centric than Alphabet’s. So I think what might be interesting is how the two companies end up monetizing this stuff.
Because, again, without having my guts in the actual details of the design and the implementation, you would think just common sense. If Google have been less privacy centric with this in various ways, they will have more data that they can use to monetize through either generative AI advertising or selling more of your data to, um, to their customers in different ways.
Their business customers, um, whereas Apple possibly end up monetizing it by increasing further the cost of their devices, um, and charging, you know, or continuing to justify like a fairly eye watering rate on anything sold on the Acolyte ecosystem, like the Apple tax of 30%, whatever it is. So, um, so yeah, we might end up with quite a different result as an investor, even though as a customer, the experiences might be fairly similar.
[00:34:06] k_2_06-11-2024_121029: This is, I think there’s an interesting irony here. You’re the guy who is telling us about the importance of cyber security, correct? And I’m, I’m, I’m completely on board with this. Now let’s take a step back and let’s realize that in 2024 people are still being scammed by, you know, stupid phishing emails, you know?
Um, like it’s still easy to scam people. Using old school techniques. Fast forward a couple of years, right? Where the most sophisticated hackers could basically generate your voice right in your own style, uh, generate images that, you know, from a naive perspective, you thought, Oh, that has to be real, right? In other words, the, uh, the likelihood of somebody getting fooled. Is higher and higher. I don’t understand how privacy and making sure that your data does not live. Anywhere else besides where it has to live is not or does not become the top priority for any and every company And if i’m right about this and based on what you said earlier, I think luke That you think apple does in fact take The privacy stuff more seriously than a company like Google, then how do you not, uh, in a sense, say the Apple tax, the Apple privacy tax is one completely and absolutely worth paying for because it’s a existential risk to yourself if you don’t,
[00:35:50] luke_5_06-11-2024_111029: Yeah, it’s an interesting question you’ve raised, and I think we’ve got to see how this actually plays out to know for sure. Um, but the fact that a company might be monetizing your data in some way doesn’t necessarily follow that your data is therefore more likely to be used by other people. Uh, like a bad actor, like a hacker or a cyber criminal or cyber terrorism.
Um, like if there was a material breach in some way within Google, okay, I buy that, but the company is screwed up at that point. If, um, uh, if, if that’s been allowed to have happened,
[00:36:33] k_2_06-11-2024_121029: yeah, I mean, I guess it remains to be seen to wrap up this point. I’d like to say. That I did not expect much from Apple’s announcement the other day, uh, the, the, the first half of the presentation was more of, you know, Apple’s being mocked these days where they’re not really innovating, they’re just polishing up surfaces and calling it innovation, but this stuff about Apple intelligence, and again, I’ll underscore the two points. Uh, a private cloud computing data where you’re where your information does not go anywhere outside your own ecosystem, allowing it to create a personal AI context that is integrated amongst all the things that you use. I have not seen that before. or in demos anyway, pulled off the way Apple pulled it off yesterday.
So I was quite, uh, let me take that back. I was ambivalent about Apple as an investment going forward because I thought who’s going to buy a new iPhone when it’s already so good. If this stuff requires the latest chips, then I now have a legit reason to upgrade to the latest phone and that could be a huge, uh, you know, um, that could, that could potentially save the company among on top of all the additional revenue from, uh, selling the ecosystem itself.
One other thing, if I may, I think Apple yesterday demonstrated how literally overnight companies. Can be made obsolete in the age of AI. So if you think about as 1 example, uh, something like Grammarly, I don’t know if you’re familiar with that. It’s the kind of writing proofreading extension app that you could buy. And, you know, it’s kind of a. AI writing tool you put on top of your writing and it pops up and gives you writing hints. All of a sudden, Apple’s new Apple intelligence makes that whole thing obsolete. Same thing with potentially image generators like Midjourney and Dolly and so forth. That whole industry we saw over the last year or two, the pop ups, AI pop ups, most of them will be dead, I think, in a year or two.
[00:39:17] luke_5_06-11-2024_111029: well, I totally agree, but don’t forget like Dali. Is inside open AI inside chat GPT, which is then back inside the iPhone. So some of these things will get more traffic as a result, but I totally agree that there are a bunch of startups essentially just building like a wrapper around. One of these industry leading LLMs, and they all just got disintermediated.
You know, if you were busy building like a travel app and you’re using open AI or Gemini to turn like the travel booking experience into a conversation, and you were trying to build like a fancy UI around that and some branding, well, like, sorry, buddy, you’ve just been eaten alive by, uh, multiple of these companies.
Cause these LLMs will just be, are getting, will continue to get increasingly capable.
[00:40:10] k_2_06-11-2024_121029: Right. And we’ve, uh, maybe gone on longer than we anticipated. So let me summarize from an investing standpoint, why I think this is important. And I’ll talk about this more, uh, in an upcoming episode where, where I discussed that book I mentioned earlier. It’s one thing to say the rate of change at which technology is progressing is faster than ever before.
And it’s quite another thing to see it play out in real time. And therefore, I think as investors, uh, I think what I want to say is the caution with which you need to invest is higher than ever, because. Even a good idea, even a good management team, even, say, enough capital to, to raise a startup from ground zero.
All of those things. In the older days, which would mean revenues in a long runway now could be made obsolete, literally overnight by one of these behemoths. So how do you go forward picking, you know, new ideas where that existential risk I think is higher than ever before. I don’t have any answers. It’s kind of like a rhetorical question I’m putting forth, but I’ve never I don’t think I’ve ever seen.
This kind of thing happened, happened so quickly in such a potent way. The only analog obviously was the internet in a way before, right? Brick and mortar versus online. And that had its own, uh, you know, ups and downs, and it took maybe a little longer past the hype cycle. But at this moment, um, I just, I don’t know, I don’t know how to say this. Um, I feel overwhelmed maybe is not the right word. I feel as uncertain as I have ever felt as an investor looking for new ideas because of the rate of disruption,
[00:42:32] luke_5_06-11-2024_111029: Yeah, good, good wrap up. I think it is a super interesting and it is interesting for us in particular to be essentially at the forefront of this conversation. I’m watching the evolution of these tools. I’m paying for multiple of them, and I’ve incorporated them into just the way I live my life now. So I do feel like we’re on the cutting edge a little bit, and I trust my own judgment built up over the last 20 or 30 years, being a bit of a technologist in terms of identifying whether something truly has a competitive edge, rather than just being.
Some, you know, bland, generic thing that’s ripe for commoditization. So, yeah, this would be an interesting topic for us to pick up on future podcast episodes. Maybe we had a, um, we had a sort of podcast theme way back, which was. Um, Phoenix or dodo, will a failing business, uh, be like a fiery Phoenix for the flames or will it be a dodo and turn extinct?
You know, maybe there’s some variant of that where we could start to look at other industries, other tools, other companies, and judge whether we think they actually are going to survive this AI. revolution or if they’re going to be on the guillotine.
[00:43:51] k_2_06-11-2024_121029: right? With, uh, I think Duolingo being a great, um, great test case to talk about further, or perhaps some of our listeners might want to chime in or think about that as a potential test case. Um,
[00:44:10] luke_5_06-11-2024_111029: Absolutely. Well, and if you do want to reach out to us again, uh, you can find us mostly on the Twitters. We’re also on Instagram. Uh, we were on TikTok. I’ve demised that because, God, because it’s just TikTok. It’s too much. Uh, uh, but yeah, mostly go chat to us on the Twitters. I’m at 7LukeHallard.
[00:44:30] k_2_06-11-2024_121029: at seven flying platypus, take a look at our 10 laws of the investing jungle over at wall street wildlife. com and do interact with us on YouTube as well. Leave us a comment, subscribe, send us a review. It really helps us a lot.
[00:44:49] luke_5_06-11-2024_111029: We do read all of our YouTube comments, and, uh, we’re starting to get little mini debates going on there. So yeah, definitely do drop us a comment, let us know about the show. Today was a good example, hopefully, of being a little more focused on, like, the investing thread of our conversations. So if you thought this was interesting, So if you thought you got some investing insights from today, let us know what you like, let us know what you didn’t like, and, uh, we’ll play that into our future episode planning.
Are you ready to become a beast of an investor? Your journey starts here.
