AI: The Next Big Thing or Biggest Bust? The tech world is obsessed with AI. But is it the next big breakthrough, or just another overhyped fad?

The market has recently punished AI stocks, with some now appearing as outright bargains. This kind of skepticism has emerged multiple times over the past 18 months since the introduction of Generative AI, often triggered by one or two companies in the space reporting slightly lower-than-expected revenue or guidance. This time is no different. A few companies in the Gen AI sector reported slightly lower-than-expected earnings, causing the market to cast doubt on the entire AI sector and driving down stock prices across the board. Historically, these moments of doubt have created brief opportunities to buy AI stocks at discounted prices, and this instance is no exception. Moreover, once users start utilizing Gen AI applications, they find it hard to return to older methods—much like the shift from using a calculator to a computer.

Here are three reasons why AI is not a passing fad:

1. Enterprises: Most large companies now have at least 3-4 AI use cases in production, ranging from financial institutions to biotech and pharma companies. They typically start with Gen AI for internal customer service, help chatbots, and document search applications, gradually extending to external customer service and chatbot applications.

2. Consumers: Beyond ChatGPT, users heavily utilize Google's Search Generative Experience. Apple has announced ChatGPT integration into Siri for iOS 18, and other GenAI LLM providers will follow, making both Android and Apple phones GenAI-capable. Amazon's GenAI shopping assistant Rufus, introduced in mid-July 2024, has already been used by millions. Soon, any website or app without a GenAI assistant will seem outdated.

3. Monetization: Unlike the early internet days, today's established business models can charge consumers effectively. Platforms like the Apple Store, Android Store, mobile advertising ecosystems, cloud service providers, and the SaaS ecosystem enable monetization. For example, every GenAI query processed by a cloud service provider like Microsoft has been a paid query since ChatGPT's introduction in November 2022.

Discussions about sector rotation, geopolitical issues, and interest rates frequently arise as reasons to avoid owning great cash-flow-generating businesses. Despite these distractions, we remain committed to selecting high cash-flow-generating companies for our Global Leaders Portfolio, which consistently stays in favor regardless of market conditions. Any temporary slide in these stocks typically presents a prime opportunity for new investors to buy into these robust businesses and for existing shareholders to increase their exposure.

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