Jerry Neumann on the Problem With Investing in AI Right Now

SPEAKER_2 (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, our colleague here at Bloomberg, Ed Harrison, had interesting newsletter today. And it's actually something I've been thinking about a little bit lately, which is that for all the talk, the AI boom or the A bubble driving the stock market, there's no AI pure plays really that are publicly traded. Like Nvidia is probably the closest, but three years ago, people were excited because they were mining Ethereum. Before that, it was like video games. This was only an AI company in people's mind since late 2022 Google still is, they're all investing a ton. There's actually no AI company that people are excited about in the public markets.

Tracy Alloway (1:01)

I think it's true. Here you have this thing that a lot of people would say is revolutionary technology, but you have to decide if you're going to invest in it. Is it going to be upstream or downstream? There doesn't really seem to be that much pure play, as you say.

Joe Weisenthal (1:18)

As our colleagues at Verma might like to say, people are investing in the picks and the shovels, this gold rush. I don't think he actually said that, just a million other people said, but it is, it's picks and shovels.

Tracy Alloway (1:28)

Stop making fun of completely reasonable commentary. That's what I say.

Joe Weisenthal (1:33)

It turns out, incidentally, picks and shovels have been great. You could have bought Caterpillar or you could have bought some old school HVAC company that's providing cooling or heating or whatever and made a ton of money. So actually, it turns out at least for the last few years, all those awful cliches have actually been big money makers and I should not make fun of them.

Tracy Alloway (1:51)

Well, here's the other thing I would say. It does feel like everyone agrees at this moment in time that there is froth in the market. Maybe it's not a massive bubble, but there's some froth and everyone is admitting or saying that you're going to have some companies that emerge as big winners, much like the.com era and then a bunch of companies that actually end up being losers. I think again, that is consensus at this point, but it doesn't really necessarily translate into actual investment because of course the trick is actually picking the winners and losers in the market. I don't know, it just seems like a weird point in time where people are like, Oh yeah, AI is great, but we all know that some of these companies are going to be massive losers. Right now, they're all kind of being treated as winners, which is the other way.

Joe Weisenthal (2:37)

Anyway, it's a very weird time. We got to do more episodes on this because it is sort of the central question on whether we're just talking about the market or talking about the economy, etc. Someone I've wanted to talk to for a long time earlier this year, he wrote a essay for Colossus called AI Will Not Make You Rich. It came out in September, it seems like ages ago. It's very disappointing because I think a lot of people really are hoping to get rich on AI. So this is a very unwelcome message.

Tracy Alloway (3:03)

It's also very much a sort of core Odd Lots thesis because in the essay, he compares and contrasts AI with containerization, which is another favorite topic.

Joe Weisenthal (3:13)

So let's just get to the guest. Someone I've wanted to talk to for a very long time, someone who literally is the perfect guest. Long time VC, started venture investing in 1997, also a professor at Columbia Business School. We're going to be talking to investor Jerry Neumann, also the co-author of a recent book, Founder vs. Investor, The Honest Truth About Venture Capital from Startup to IPO. Maybe he'll tell us when we'll see some of these.

Tracy Alloway (3:36)

And the bringer of excess Halloween candy. So he gets brownie points for that too.

Joe Weisenthal (3:41)

Literally the perfect guest. Jerry, thank you so much for coming in. Thrilled to finally have you here.

Jerry Neumann (3:46)

Thanks, I'm glad to be here.

Joe Weisenthal (3:47)

What does that mean AI won't make you rich? AI has made people super rich and it's making people rich every single day.

Jerry Neumann (3:53)

You know, as an old mentor used to say, money's not money till it's cash. So is anybody really rich yet?

Joe Weisenthal (3:59)