24/7 Wall St. Key Points:

• Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) are heavily investing in AI, but questions remain about how they will effectively monetize these products, as many AI services are currently being offered for free.
• The AI sector lacks a strong competitive moat, with new companies emerging rapidly, making it difficult for major players to establish long-term dominance or justify massive capital expenditures.
• Investors should be cautious when evaluating AI-driven stock valuations, ensuring that companies can generate real revenue from AI rather than simply integrating it as a free enhancement to existing products.
• Nvidia (Nasdaq: NVDA) has started to show some cracks, but even $1,000 in ‘The Next Nvidia Stocks’ could mean life changing wealth. The recent pull back may be the best opportunity to load up investors will get. Click here to see the stocks now (it’s free).

Watch the Video

Transcript:

[00:00:04] Doug McIntyre: Microsoft bought a piece of OpenAI. Which I think helped get it on the map. I mean, it was in the tech sectors, people knew what it was, but Microsoft is really the company that brought AI to the, to the public’s mind when it, you know, it basically bought a large chunk of Open AI, a private company.

[00:00:25] Doug McIntyre: Now that relationship has soured. There’s still a big shareholder in it, but it’s sour to the extent that, you know, Microsoft was only going to use open AI’s products. Right. They’re going to be best friends. That has not happened. They are now, I guess what you call frenemies, but they’ve each gone their own way when it comes to partnerships developing their own products. They are now, they now compete with each other.

[00:00:52] Lee Jackson: Yeah. And, you’re not surprised except a little bit because I mean, when is Microsoft not gone into, you know, grabbing other items? I mean, that’s how they built it. Um, so yeah, it is kind of interesting.

[00:01:07] Lee Jackson: And the, the mere fact that. That they would develop one when they still do own a good chunk of open AI is, is that somewhat of tossing it back in, in the face of the AI, uh, open AI owners and people of that saying, look, okay, it was kind of a nice little tango, but we’re going to build something bigger and better.

[00:01:31] Doug McIntyre: That is what that has happened with Microsoft. And you now have. All these marriages going on in the AI space. And, it’s like that game you play where you all walk around in a circle and somebody takes his chair out. And the question is who, who doesn’t have a chair? They get kicked out of the game.

[00:01:51] Doug McIntyre: Yeah, right now, yeah, right. Everybody’s trying to get a partner. They do not want to be the people left there without a chair. So you’ve got this suite of private companies, XAI, you’ve got OpenAI, you’ve got another four or five of them. Then you’ve got all the public companies that are in the big AI business.

[00:02:16] Doug McIntyre: And here’s what I don’t like about AI. AI’s moat is not wide or deep. And moat for people who you know, aren’t old enough to know the word moat when it comes to businesses. That is you start a company and it’s very hard to compete with you. Because it costs so much money. The technology is so far ahead.

[00:02:38] Doug McIntyre: For example, the moat that Ford (NYSE: F) and GM (NYSE: GM) have right now is huge. You can’t, people can’t go build a car factory. They can’t, you know, they’ve got a huge, they’ve got a huge moat. Coke has a huge moat. You can’t like. Go invent a cola, invent a brand, you know, get the ability to sell 50 million bottles, make the bottles big moat.

[00:03:04] Doug McIntyre: What’s happening right now, and you see this with DeepSeek, all these AI products are coming out of the wall. The whole China thing. I mean, people were sitting around one morning and all of a sudden there’s the announcement that the Chinese have an AI product. It costs like 2 percent of what it costs to build the products for Open AI.

[00:03:22] Doug McIntyre: Now it turns out that may not be true.

[00:03:25] Lee Jackson: Well, it’s coming out of China. So it could definitely not be true, but yeah.

[00:03:28] Doug McIntyre: But you can download, people can use it and it’s free. And I don’t like businesses and I don’t like Microsoft and I don’t like Alphabet. I don’t like them in these businesses for a simple fact and that is that a lot of people are going to expect that the AI products that you get from these places are going to be free.

[00:03:50] Doug McIntyre: Because if I get it for free from Musk over at XAI, then it’s well why would I pay for it over and you know they say at Microsoft, well it’s integrated with Windows. Okay. Does that mean I’m going to pay a lot of money for it? I don’t think so.

[00:04:04] Lee Jackson: I mean, yeah, well, you’re exactly right. And just for our younger viewers, a moat is a body of water that goes around a castle.

[00:04:14] Lee Jackson: Oh, that’s right. And the thing is, is they used to put that moat there because the castle had a drawbridge that they could lower to get in and out. But what they would do is they would raise that up. The water would be there. And sometimes they, and back in the medieval ages, though, The way the water was waste water also, and that’s where the moat comes from.

[00:04:38] Lee Jackson: Just a quick history lesson for our good viewers.

[00:04:41] Doug McIntyre: Right, right. For people who don’t know the, the medieval history of moats. That’s right, right.

[00:04:47] Lee Jackson: And now it’s a company that has something similar, that everything they’ve surrounded themselves by. you know, makes it almost impossible to challenge their, their superiority or their place in the market.

[00:04:58] Lee Jackson: And Coke (NASDAQ: COKE) was a great example. That’s the top brand in the world, in the world, is Coca Cola.

[00:05:05] Doug McIntyre: But if you’re an investor and you’re looking at these megatech companies, Alphabet, Microsoft, Oracle (NYSE: ORCL), even Apple (NASDAQ: AAPL), You need to ask yourself the question, if they have AI products or services, it’s great. Are they getting more money because they have them?

[00:05:24] Doug McIntyre: Are people paying more for an iPhone because it has Apple intelligence on it? Yes or no. Are people getting Windows because it’s got, you know, Microsoft’s latest AI product? Yes or no. If they’re not selling. If they’re spending billions of dollars on servers, billions and on Nvidia (NASDAQ: NVDA) chips, and they don’t have products that they can sell for and get cash for them, then you have to ask yourself the question of why would I buy a stock where the management has decided to spend 10, 20, $30 billion on something and they can’t charge?

[00:06:03] Doug McIntyre: Money for it. My favorite example of this is meta. Okay. They said they’ll spend 50 billion dollars on AI. Most of it, you know, building server farms so that you can, you know, teach AI, you get it in there and you tell, you keep telling it everything in the world over and over and over. Whenever there’s something new, you tell us it’s a great business model, I guess.

[00:06:28] Doug McIntyre: Now, if you’re a Meta (NASDAQ: META), what are you going to do? Yeah, I’ve got it. Is it going to be part of the metaverse? You know, something where they’ve lost 10 or 20 billions on that and they lost billions last year on metaverse and all that. So, so all, is all of a sudden the metaverse going to become really attractive and they can charge a lot of money for Metaverse products?

[00:06:47] Doug McIntyre: Or are you going to be able to go to AI? Are you going to be able to go to some AI powered Instagram or Facebook or something and then all of a sudden it’s like, oh well. I’m going to spend a lot more time on Facebook or I’ll buy it, you know?

[00:07:02] Doug McIntyre: Now that I’m hearing for Apple, well, the upgraded series is not going to be ready for a while.

[00:07:08] Doug McIntyre: And the Apple AI is not really working the way we want it. So it’s like, stop, stop putting out stuff that’s still in alpha state or whatever. I mean. put out finished products that can do something. Yeah.

[00:07:21] Doug McIntyre: So if you’re an investor and you’re looking at one of these AI companies, and by that I mean a big tech company that’s saying it’s betting the farm on the fact that AI is going to enhance its earnings and that therefore, it’s going to be a great company.

[00:07:37] Doug McIntyre: Ask yourself this question. What are they going to do that enhance their products or services using AI that they can charge money for? It’s like a car. If somebody says to you, you know, we’re gonna put all this software in these cars and they’ll run the windshield wipers were run themselves If they’re not charging a lot of extra money for that car, what difference does it make?

[00:08:02] Doug McIntyre: Might be nice for the driver, might be nice for the consumer. But, you know, I can go to my phone I can open AI. I can go on down here and for free download half a dozen AI apps on this for free. It’s for free, nothing. So if I’m an investor in one of those companies, be it a public company or one of these private companies, why would anybody be impressed the fact that you’re building something and you’re giving it away for free?

[00:08:32] Lee Jackson: That’s exactly it. And that’s a good point for people to look at, because I’m telling you, Google is going to lose crumbs, we’re going to have to spin it off, you know, the government’s going to force them to, and is that going to happen to all of them in some way, shape or form? Well,

[00:08:47] Doug McIntyre: look, I’m, uh, while we’re on here, see, I’m going to go over here.

[00:08:51] Doug McIntyre: I’m going to go to Google. Now, so what I get is I get a summary when I put in Henry Ford it’s done by Gemini, whatever it is, AI applications they have. So, the search experience is supposed to be better. And quite frankly, I think it probably is, but the Google search is better with their little AI. I’m not paying any money for it.

[00:09:17] Doug McIntyre: No, of course not. So what I’m saying is, is okay. Wow. That’s fabulous. It’s great. It’s a better experience. But am I going to use Google more often? No. Are they going to charge me for this? No. So, if I’m an investor in Alphabet and they say, oh, we’re going to spend 35 billion on AI initiatives, what are you going to do with it?

[00:09:37] Lee Jackson: That’s a really good question. It’s gotten so far ahead of itself that, and this always happens. It always happens. History always repeats itself. I mean, the internet and all of the crazy at the end of the last century, it got way ahead of itself, you know, and it took years for it to come back, but it did, and the internet, you know, has proven to be everything it was supposed to be in all of that, but boy.

[00:10:02] Lee Jackson: It got way ahead of itself because Internet e commerce didn’t become really super functional until five, 10 years ago. I mean, super functional to where it can take care of everything a store can do. And that’s just such a good, good proof. Like, okay. So I get nothing. But I still get the AI, but they get nothing.

[00:10:23] Lee Jackson: And it’s like, yeah, it doesn’t add up.

[00:10:25] Doug McIntyre: For those of you who are interested in AI, there’s two things. Number one is AI has no moat. You basically open AI. Suddenly they had competition from China out of nowhere. It’s literally, Oh, here it is. There’s an AI company started every six minutes. And a bunch of venture capital people are raising, you know, you read the newspaper, this company came out, it’s got a 10 billion valuation for doing what, but listen, I’m not saying that it’s, it’s AI, but what I am saying is, where’s the proof that that company is going to be able to make any money.

[00:11:02] Doug McIntyre: If it has a better AI product than open AI, it’s like, at what point, how good does it have to be before people say, Oh, I’ve got to have that. I understand that there are some vertical companies. Palantir (NYSE: PLTR) is a good example where they’re using AI, making it and just taking products, services they spend a lot of, charge a lot of money for, and they’re enhancing it.

[00:11:26] Doug McIntyre: But this whole idea of consumer AI demand is crazy. So if you’re looking at companies and you look at Microsoft or something and say, wow, that’s an AI play, ask yourself a simple question. It is an AI play, but are they going to invest 30 billion dollars and get anybody to pay for any part of it?

[00:11:47] Doug McIntyre: Or is it something they’re just going to dump into Windows, hoping to get customer attention?

[00:11:52] Lee Jackson: Yeah, that could be it. That could be the end game for half of it, easily.

[00:11:57] Doug McIntyre: Well, if that’s the truth, ask yourself the question of whether Microsoft’s valuation has gone up too much because it’s an AI stock.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.