Brainchip Holdings (ASX: BRN) should by one measure, be doing gloriously well right now. It's in AI, AI is the new big thing, why isn't the stock soaring? For it isn't. The stock is down 6% overnight and that's not off the back of a recent run up either. It's down 67% over the past 2 months. So, what's going on here?
One answer - a possible answer - is that perhaps Brainchip just isn't very good at AI. That's a possibility, obviously. We could also muse on the idea that as ChatGPT moves to version 4,0, Google launches Bard and so on then there's less room in the marketplace for Btainchip's approach. Far from the current popularity validating their ideas and sector, the technological path taken seems a little different (ie, large models in the could, not small ones on chips) and thus not quite what Brainchip is offering to customers.
Brainchip Holdings share price from ASX
We can also ignore the question of why it doesn't seem to be working and retreat to the other one, is it likely to work in the future? The answer there is sadly, likely, negative., Yes, AI is the new big thing. But what we're seeing is that it's massively competitive. One reason for this is that large language models, necessarily, learn from each other. There's therefore unlikely to be any lasting technological edge owned by any one market participant (as Marginal Revolution has pointed out).
This means that AI probably will change the world. But it also means that it's not a great place to be investing. Intense competition means that the owners, the capitalists, don't get to earn good profits as they'll be competed away. The benefits, such as they are, end up with the customers as the consumer surplus. That is, the better AI is the less profit there is, the worse the shares of those producing AI will do. This really isn't what we, as investors, want to be involved in therefore.
Of course, it's possible to think that at least some profit will be made from building and applying AIs. But the more replicable they are the more it's going to be applications of AI that garner profits, not the AI production itself. By analogy, Apple and Samsung between them have normally accounted for more than 100% of the profits of the entire smartphone handset sector. Intense competition means the rest of the industry has been running at an economic loss for the past decade. Could that happen with AI? Sure - so is this a sector we want to invest in?