By Christopher Gannatti, CFA
With a topic as exciting as artificial intelligence (AI), it’s easy to get caught up in the hype. Gartner has even delineated its “Hype Cycle” to more or less codify the emotional journey that frequently accompanies advancements in technology.1 It’s easy to see a new achievement and how exciting it is, but when thinking about an investment thesis, it’s important to step back from the emotion and consider where the rubber really meets the road.
Anthem: What does “Making AI” really look like?2
A company using AI
Anthem Inc. (ELV) (renamed Elevance Health) is a health insurance company. It was recently reported that Anthem would work with Google Cloud (GOOG) (GOOGL) to generate 1.5-2 petabytes of synthetic data.
Let’s stop for a moment: what is a “petabyte”? We’re more familiar with gigabytes, as a two-hour movie can take up 2-4 gigabytes, depending on the video quality used. A terabyte is approximately 1000 gigabytes and 1 petabyte is 1000 terabytes. So a petabyte is 1 million gigabytes, the unit we are most familiar with.
Meta Platforms (META) is building a research super cluster focused on training models on an exabyte of data – which is the next step, and 1,000 petabytes. One exabyte is roughly equivalent to 36,000 years of high quality video.3
Second, what is “synthetic data”? It can be real-world data that has been stripped of personal information and fully anonymized, or it can be completely artificial, generated from deep generative models. An interesting side benefit of using synthetic data, at least perhaps, is how it might mitigate some of the biases that have been shown to exist in real-world datasets.
So why does Anthem need to generate 1.5-2 petabytes of synthetic data? What problems could it help solve? The company says the data will be used to validate and train AI algorithms that identify things like fraudulent claims or anomalies in a person’s health records. Anthem uses both Amazon Web Services (AWS) (AMZN) and Google Cloud for cloud computing, and the company decided to work more with Google for its AI capabilities for this specific effort.
Black Knight: Bringing AI to Mortgage Data
On May 4, 2022, Intercontinental Exchange Inc. (ICE) agreed to buy mortgage data company Black Knight (BKI) in a deal valued at $13.1 billion. It is expected to close in the first half of 2023. ICE is known as an operator of exchanges, clearinghouses and other financial market infrastructure, but in recent years it has pivoted to participate in the increasing digitization of the market housing. Before the deal with Black Knight, ICE bought mortgage software company Ellie Mae for $11 billion. She had also purchased Simplifile, a company that facilitates the electronic processing of mortgage files.4
Black Knight itself began integrating AI as a value-added service into its solutions in 2018. It was obvious to see AIVA, a mortgage AI digital assistant, being used. This happened via the acquisition of HeavyWater in 2018. The company was also big acquirer in the area of AI with Collateral Analytics (automated AI-based analysis of real estate data), eMBS (platform of cloud-based analytics), Top of Mind (AI-based). CRM software) and Optimal Blue (automated loan origination platform). Software solutions accounted for more than 80% of Black Night’s revenue at the end of 2021.5
Synopsys: Part of the foundation of “Everything Smart”
Synopsys (SNPS) posted a profit of $294.8 million in the second quarter, which exceeded analysts’ expectations. The market reacted particularly well to the increase in full-year revenue guidance to a range of $5.0 billion to $5.05 billion from a previous target of $4.78 billion at 4 .83 billion dollars.6.
Synopsys is an electronics design automation company, and it’s particularly strong in designing field-effect transistors, which could provide growth opportunities. Synopsys customers include most major semiconductor companies. When thinking about the market opportunity for Synopsys, consider the growing demand for “everything smart”. In its investor presentation, Synopsys included a forecast that revenue from deep learning chipsets could reach $72 billion by 2025, up from less than $10 billion in 2018.seven
Splunk: Resilience in the face of economic turbulence
Splunk (SPLK) performed better than the market community expected when it reported results for the quarter ended April 30, 2022. Revenue increased to $674 million, or an increase of 34% over the previous year. Cloud revenue was $323 million, up 66% year-over-year for the specific segment. Company management has indicated that Splunk is unlikely to have much of an impact on current macro issues, as the company’s security budgets do not appear to be under threat.8
Silicon Motion: being acquired by MaxLinear
In early May 2022, it was announced that Taiwanese semiconductor company Silicon Motion Technology (SIMO) had agreed to be acquired by MaxLinear (MXL) in a deal valued at $3.8 billion.9 Silicon Motion has more than 20 years of experience developing specialty processor ICs that deliver industry-leading storage solutions used in data centers, personal computers, smartphones, and in commercial and industrial applications. The controller’s intellectual property portfolio is extremely broad.ten
Palo Alto Networks: AI and Machine Learning Could Add Value to Entire Platform
The Russian-Ukrainian conflict has emphasized cybersecurity so far in 2022, which has contributed to the Palo Alto (PANW) results. Similar to Splunk, the company does not yet see increased inflation causing pressure on corporate cybersecurity budgets. As Palo Alto Networks lays out its view of the market landscape, they make it clear that most companies want greater security, but fewer cybersecurity personnel, opening the door to innovative AI and machine learning solutions. In fact, they note that AI and machine learning should be at the heart of their entire platform.11
Conclusion: Don’t let the hype sour any view of the action
Hype is dangerous: it can set expectations too high and lead to inevitable disappointment. In 2022, businesses are taking real action with AI, and while we’ve listed a few here, it’s far from the complete picture. For those interested in an investment vehicle designed to gain exposure to AI, consider the WisdomTree Artificial Intelligence and Innovation Fund (WTAI).
For WTAI holdings, please click here.
1 Source: Gartner Hype Cycle Research Methodology | Gartner
2 Source: Isabelle Bousquette, “Anthem Seeks to Fuel AI Efforts with Petabytes of Synthetic Data,” the wall street journal05/17/22.
3 Source: Suman Bhattacharyya, “Meta Unveils New AI Supercomputer”, the wall street journal01/24/22.
4 Source: Alexander Osipovich, “Intercontinental Exchange to Buy Mortgage Data Company Black Knight for $13.1 Billion,” the wall street journal04/05/22.
5 Source: Consumer Technology Association.
6 Source: Logan Moore, “Synopsys Stock Rises on Deeper Review. Analysts See Growth Opportunities,” Barrons05/19/22.
seven Source: Synopsys May 2022 Company Overview
8 Source: Eric J. Savitz, “Splunk Stock Rallies as Software Company’s Results Top Estimates” Barrons05/25/22.
9 Source: Lina Saigoal, “Silicon Motion Technology Stock Soars After $3.8 Billion MaxLinear Deal,” Barrons5/55/22.
ten Source: Silicon Motion Company Fact Sheet
11 Source: Palo Alto Analyst Day Presentation
Important risks related to this article
Christopher Gannatti is an employee of WisdomTree UK Limited, a European subsidiary of WisdomTree Asset Management Inc.’s parent company, WisdomTree Investments, Inc.
There are risks associated with investing, including possible loss of principal. The Fund invests in companies primarily involved in the investment theme of artificial intelligence (AI) and innovation. Companies engaged in AI typically face intense competition and potentially rapid product obsolescence. These companies are also heavily dependent on intellectual property rights and may be harmed by the loss or degradation of these rights. Additionally, AI companies typically invest large sums in research and development, and there is no guarantee that the products or services produced by these companies will be successful. Companies that capitalize on innovation and develop technologies to replace older technologies or create new markets may not succeed. The Fund invests in securities included in or representative of its index, regardless of their investment merit and the Fund does not attempt to outperform its index or take defensive positions in falling markets. The composition of the Index is governed by an Index Committee and the Index may not perform as intended. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.
Christopher Gannatti started at WisdomTree as a Research Analyst in December 2010, working directly with Jeremy Schwartz, CFA®, Director of Research. In January 2014, he was promoted to Associate Director of Research where he was responsible for leading various groups of analysts and strategists within WisdomTree’s broader research team. In February 2018, Christopher was promoted to Head of Research for Europe, where he will be based in WisdomTree’s London office and will be responsible for all of WisdomTree’s research efforts in the European market, as well as supporting the UCIT platform on a global scale. Christopher came to WisdomTree from Lord Abbett, where he worked for four and a half years as a regional consultant. He received his MBA in Quantitative Finance, Accounting and Economics from NYU’s Stern School of Business in 2010, and he received his BS in Economics from Colgate University in 2006. Christopher holds a Chartered Financial Analyst designation.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.