When a market is still forming, the conditions in which we operate are in a state of flux. An ambiguous environment is akin to the “wormholes of science fiction, where the usual rules of time and space do not apply,” as put by Rory M McDonald.

How can you create value when value is yet to be defined? This unchartered territory, where conventional thinking seems to break down, creates opportunities that are simultaneously daunting and exciting for investors. Those that choose to embrace the unknown face high-risk, high-reward conditions, where the prospects of profit are as great as the chance of falling short.

The generative AI market is a prime example. Since OpenAI’s launch of ChatGPT back in November 2022, it’s hard to find a sector that isn’t rebranding or reinventing itself to capitalize on this opportunity, and investors want in.

With Goldman Sachs research estimating AI investment will reach US$200 billion globally by 2024, investors need to spot the technology that will be truly transformative.

But despite the hype around AI, the same old challenges remain for investors – past performance is no guarantee of what will happen next. Big Tech, with millions of powerful shareholders, can still be beaten by a startup founded last year. It’s easier said than done, but astute investors will seek and assess opportunities with an open mind, and always do so with an eye on the future.

Learning from the Past

Learning from tech predecessors, investors will need to build on the lessons learned in previous tech-hype cycles and leverage these to navigate current trends in investment patterns.

Let’s take BlackBerry as an example. Fifteen years ago, they were everywhere. The offering was revolutionary – you could finally send emails on the move, providing independence from the office. While this feature is commonplace today, it was extraordinarily innovative at the time. BlackBerry’s share price peaked in August 2007 at US$236 – Microsoft, today’s most valuable company, traded for US$22. And yet, its fall happened instantly.

By 2013, it was just over US$10, a forgotten former behemoth with out-of-pocket investors who had watched its market share capitulate. It joins a host of other bygone industry leaders; Atari, Blockbuster, Billpoint, to name but a few. These companies serve as reminders that no matter how successful one becomes, no company is immune to the impact of new technological developments – you must keep up. So too, do investors.

The AI Bubble

There are many opportunities and threats in today’s AI bubble. With Apollo’s Chief Economist saying AI technology is more overvalued than those at the beginning of the internet era in the late 90s, skeptics have been quick to warn of another bubble, but this is not necessarily transferring into the stock market.

While Microsoft and Google’s AI-first strategies have seen share price gains, Meta doubling down on AI has seen its stock slide by double digits – wiping off US$18bn following its latest earnings call. The onus is therefore on investors to ensure that the AI industry does not follow the same trajectory as the dot.com days by pushing too much money into startups with either unqualified or unproven business models.

Interestingly, investment patterns are shifting – has the industry learned its lesson?

Venture capital funds are moving from foundational models (such as those underpinning ChatGPT) to focus on the applications leveraging these models and the infrastructure needed to power them. While operational costs will fall in correlation with access to hardware becoming easier, investors will have to be mindful of disruptive potential versus return on investment.

Infrastructure Investment

Value should be derived from not only current, but future applications of the technology at hand. This means assessing if the management and product pipeline structure could help fuel value for years to come, while also accommodating future trends and requirements within the generative AI industry.

Traditionally price and speed have been seen as key drivers for success – but this is shortsighted. It’s not just knowing what you want to do, but how to do it responsibly.

In the case of the generative AI market, investing in access to the GPUs (graphics processing units) to power these models is only the first step. How to house these GPUs in the right way, with the right software and use them with sustainability in mind are steps two, three, four and so on. This is how the true revolutionaries think.

Microsoft has already announced plans to invest billions in data center infrastructure in countries such as Spain, the United Kingdom and Japan – it’s the move needed to transition from being an AI developer, to a fully-fledged AI powerhouse. Doing so will build investor confidence.

Providing end-to-end solutions – encompassing access, engineering and powering the final product, while achieving market share and demonstrating your unique offering will certainly win hearts and minds.

When it comes to investing in a nascent market, it’s on you to define success. Irrespective of industry, you are looking for a winning strategy that delivers value – and a value that trumps someone else’s.

Just as in a good science fiction movie, you are the explorer looking for the wormholes that can take you to interesting new opportunities rather than, like a black hole, swallow your investment whole.