Josh Wolfe on Where Investors Will Make Money in AI

Joe Weisenthal (0:10)

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

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, I mean, I think it goes without saying that the appetite and interest in anything related to AI and making money from AI continues unabated.

Tracy Alloway (0:27)

Yes, I think that's accurate. Well, it's interesting, because you kind of see it from two different sides at the moment. So there are a lot of companies that are talking about investing internally in AI technology, and then there are a lot of investors talking about investing in AI in one way or another.

Joe Weisenthal (0:46)

I mean, needless to say, you throw a dart at NASDAQ stocks and they're talking about the way AI incorporated. It's also funny because you read the earnings transcript of a grocery store chain, and the CTO will be talking about how AI is gonna help them.

Tracy Alloway (1:04)

Wasn't this Kroger?

Joe Weisenthal (1:05)

I think so. And to be fair, I think they actually legitimately have been investing, so it's not totally, but they mentioned AI.

One company, I don't remember, mentioned it a dozen times.

Tracy Alloway (1:16)

I'm pretty sure it was Kroger. But I think I've said this on the podcast before. It does feel like there are some people out there who at this point are basically using AI as a synonym for any type of software. Just like we use software, we're using AI.

But it begs the question of how to smartly invest in a technology that clearly a lot of people are enthused about, but it's also kind of hard to disaggregate a lot of the marketing from the reality.

Joe Weisenthal (1:45)

Well, and the thing that gets me in that I'm still trying to wrap my head around too is, like, especially for the big tech incumbents, and I'm thinking of like Alphabet or Google or whatever, like they have an amazing business model right now, right? Like people search for something and then you're telling the machine exactly what you are looking for. And then the machine knows, okay, well, here are some ads that we can put.

And I know like obviously Google is, you know, very like front of the curve in terms of AI tech and they have their own large language models and all of that stuff. But does anyone know that like this is gonna turn into like a money making thing for them? Like, will it be anywhere close to this amazing money printing machine that they built when they built the Google search bar?

Tracy Alloway (2:29)

Well, I think that's a really good question. And also, so far, we have seen the incumbents come out as the big winners of a lot of this new technology. And I think, A, that's been unexpected. If you'd ask someone five years ago who was gonna be the big winner in AI, I don't think anyone would have said Microsoft.

Joe Weisenthal (2:48)

Right, right.

Tracy Alloway (2:50)

And so that also raises the question of, okay, how did the giants monetize this, to your point? And then secondly, are there going to be new players who somehow come in and find a better way to do it?

Joe Weisenthal (3:01)

Right, like how disruptive will it be?

Tracy Alloway (3:03)

Yep.

Joe Weisenthal (3:04)

Well, I am excited because I believe we do have the perfect guest. We're gonna be speaking with Josh Wolfe, founding partner and managing director at Lux Capital, who has been investing in AI since long before it was cool, long before everyone started asking like, ChatGPT to like, you know, write a song about the Fed and the style of Johnny Cash or whatever. Like long before we-

Tracy Alloway (3:29)

Hey, I feel seen.

Joe Weisenthal (3:29)

No, I feel, I'm describing myself.

I'm describing both of us, long before we were all doing that. And so he's going to talk to us about how he thinks about making money in AI and where the value is gonna accrue in identifying investment. So Josh, thank you so much for coming on Odd Lots.

Josh Wolfe (3:47)

Joe, Tracy, great to be with you.

Joe Weisenthal (3:48)

Can I ask you a question for real? Like, we obviously have this boom and et cetera, but the tech's been around. Did people basically just get excited because like someone finally put a good UX on top of this technology for a while and suddenly like, oh my God. Like, was that sort of what catalyzed this current stage of enthusiasm?

Josh Wolfe (4:08)

I think the lay answer is what catalyzed this was a sense of conjuring magic. People felt like they were effectively casting spells. Like you said, whether it was a Johnny Cash song conjured to talk about the Fed, but it's the feeling that somebody had a superpower. So I think that's what catalyzed it where it was a feeling of positive surprise where people were like, oh my God, like I just created magic. And that classic cliche that any sufficiently advanced tech is indistinguishable for magic, this felt like magic. Now the roots of it go back over a decade and that's what the public doesn't see. And part of that is the bones and part of it is the brains, the tech infrastructure. So you start with the GPUs. Now we've known computing for decades and Intel was the dominant force. Intel made CPUs, central processing units. And there was this thing off on the side that was just doing graphic processing and it was for video games. I've got this mental model, this framework, where a lot of people say that the most dangerous words in investing are this time is different.