Venture Capitalists Are Targeting This $5 Trillion AI Opportunity
Learn How to Invest with the Smart Money in The Next Disruptive AI Trend
Some of the fastest growing start-ups in the world right now are using AI automation to target a $5 trillion opportunity.
That’s how much Joe Lonsdale, Co-founder of Palantir (PLTR), and the investment team at his venture capital firm, 8VC, estimate is spent on AI-exposed wages in the American services sector every year.
They came up with this massive figure using the same approach that turned Palantir into the best Big Data company in the world. They broke down the workflows of service sector jobs into maps, which they call an “ontology.”
Think of an ontology as a digital map for a company. All the processes ingrained in the normal functioning of a business are mapped out using data, logic and actions. Basically, an ontology organizes data scattered across a business and turns it into a useful tool.
Palantir used this technique to develop a monopoly-like dominance in the data integration business, essentially creating an operating system that makes organizations more efficient, competent, and easier to scale.
Palantir has also become one of the top AI companies in the world, because organizing and analyzing lots of data is exactly the kind of thing that AI is good at automating.
It’s a big reason why shares of PLTR have rocketed more than 1,100% higher over the last two years.
The team at 8VC estimates that AI can be used with the same ontology-based approach to automate over one trillion dollars in support, back office, operations, and sales wages in the US alone.
The companies that use AI to automate these job functions will outpace the competition by increasing productivity, improving margins, and growing profits.
And this is just the low-hanging fruit that is prime for disruption. AI automation is an enormous opportunity that will transform the global economy.
The AI infrastructure build out was the big story of 2024. And it wasn’t just Nvidia (NVDA) cashing in on the trend.
Some of the top performing stocks were upstream utilities that provide power for AI data centers. This included Vistra Energy (VST) and Talen Energy (TLN), which finished the year up 267% and 215%, respectively. Those are major outlier annual returns for utility stocks.
The AI infrastructure buildout will continue to be a key investment theme, but I expect the storyline for 2025 will move to AI automation platforms and the rise of the AI agent.
In terms of my AI value chain, the category of stocks we want to focus on to play this trend are the Mid-Stream Microscalers with data platforms and the Downstream Enablers offering AI-as-a-Service. We’ll look at some of these stocks in Part II of this post.
2025 Will Be the Year of the AI Agent
An AI agent is basically a sophisticated bot that can handle your tasks and make decisions for you.
Imagine you work in customer service for a retail clothing store. You probably handle a lot of returns. Over the last year you’ve discovered that ChatGPT is really good at drafting replies to customer emails. That’s a great start, but it’s only the tip of the iceberg.
An AI agent will not only reply with to customer emails with customized recommendations. It will also process the order, coordinate the return with the warehouse, optimize the shipping route, track inventory, predict demand, re-order stock as needed, detect fraud and produce sales forecasts.
Models like ChatGPT are good at responding to single inquiries. AI agents can think multiple steps ahead, analyze data, work through complex problems and take action based on context and goals defined by the user.
This is what Palantir has become so good at with its Artificial Intelligence Platform (AIP). Customers are lining up to have their company’s ontology mapped so that AI agents can be deployed to streamline operations, improve customer experiences, and enhance productivity.
This may sound like a scary proposition for the millions of customer service workers and other administrative jobs that are prime candidates for automation. But it’s not as big of a concern as one would think.
According to the team at 8VC, the key to going after these workflows and the spend related to it is combining technology with human expertise.
The goal is to create a positive feedback loop between software and labor, which makes employees more efficient, creates more value for customers and captures more profits for companies.
Sure, there are going to be jobs lost to AI agents, but we’re nowhere close to full automation of complex processes. It will also create entirely new jobs, just like the rise of computers created a new field of programmers. We’re already seeing this with six-figure salary job listings for “prompt engineers.”
As investors, it’s time to start looking at the stocks that are best positioned to capture the hundreds of billions of dollars that companies will invest into automation.
The market intelligence firm IDC estimates that global enterprise spending on AI solutions will reach $307 billion in 2025 and grow to $632 billion by 2028.
The three industries IDC projects will spend the most on AI are: Software and Services, Banking, and Retail.
These industries are the leading the way because they have the most to gain from adopting AI.
It comes down to how easily a job can be automated by AI and which industries have the most expensive labor forces currently doing these tasks.
According to Goldman Sachs, the two industries that have the largest potential earnings gain from AI adoption via labor productivity are: Software & Services and Commercial & Professional Services.
In other words, these sectors have a lot high-paid employees doing tasks that AI can do faster, better, cheaper and 24/7.
That’s why 8VC has spent the last few years investing in companies that are integrating AI with best-in-class operations to transform B2B service industries.
In Part II of this post, we’ll take a look at some 8VC’s best investments in this space and explore some of stocks that are taking a similar approach. Stay tuned…
To profitable journeys ahead!
Jake Weber
The Profit Nomad
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