Bill Gates has always been ahead of his time. In 1995, he called the internet a “tidal wave” that “changes the rules,” and he was more than right: The internet changed the rules for how we interact, shop, conduct business, and much more.
So, when Gates talks about the future and technology, it’s worth paying attention to.
And in a seven-page manifesto released last week, Gates shared his latest prediction on the transformative impact artificial intelligence (AI) will have on our daily lives:
“The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the Internet, and the mobile phone. It will change the way people work, learn, travel, get health care, and communicate with each other. Entire industries will reorient around it. Businesses will distinguish themselves by how well they use it.”
The forward-looking minds at ARK Investment also named AI the single most disruptive innovation of our time creating the potential for “super-exponential growth,” stating:
“The adoption of artificial intelligence should transform every sector, impact every business, and catalyze every innovation platform.”
As an opportunity, MarketsandMarkets Research projects the AI market will rocket 36% a year in value to take it from $86.9 billion in 2022 to $407 billion by 2027.
With full adoption by 2030, AI has the potential to quadruple worker productivity, bring fully-autonomous vehicles to life, and create $90 trillion in enterprise value… And we’re just scratching the surface.
As investors, the opportunity in AI is clear as day – and when ChatGPT made AI “real” for everyday folks at the end of 2022, global conversations around artificial intelligence started buzzing off the charts:
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Tech companies realized en masse that if they wanted to capitalize on the moment, capture those consumers’ dollars, and stay relevant in this evolving tech landscape – they’d have to go AI or bust.
And in their sprint to adopt AI, more than a few fumbled the ball.
Snapchat (SNAP) tried its hand with an experimental “My AI” feature that’s like a virtual friend you can chat with about just about anything – with detrimental effects. Turns out, the AI “buddy” it unleashed was wildly inappropriate.
Microsoft’s (MSFT) first attempt at an AI-integrated Bing was successful in getting folks to use the once-neglected search engine – and in creeping those users out:
It’s no wonder only 9% of Americans believe AI will do more to better our society than harm it, as Monmouth University found in a recent poll.
That’s why we were thrilled to see a company FINALLY do AI justice…
This Is AI Done Right
About a month ago, Spotify (SPOT) rolled out a personalized AI-powered DJ named Xavier (or “X” for short) and set the internet ablaze. You can see the surge in “spotify dj” searches mapped on the Google Trends chart below:
The new feature queues up personalized tracks alongside real-sounding voice commentary from a digital DJ Xavier. Imagine your “Discover Weekly” and “Spotify Wrapped” playlists melded into an on-demand music lineup, just for you, whenever you want it.
Between the ultra-curated sets and raspy-cool DJ voice, listeners aren’t just buzzing about the AI-powered DJ – they’re loving it. (And we are too.)
So much so that our social media machine picked up an immediate uptick in Consumer Happiness Mentions, taking Spotify’s happiness level from 67% to 70%-plus:
(Want to see what the hype is about? Open up your Spotify app, click “Music” at the top of the homepage screen, tap play on the DJ card, and enjoy.)
DJ Xavier isn’t the only way Spotify is supercharging its business strategy with AI.
Earlier this week, the company debuted “Niche Mixes,” which are tens of thousands of unique, user-generated playlists based on moods, vibes, and genres, found in the “Made for You” hub.
Spotify’s DJ Xavier is an awesome application of AI. But for investors, it’s more than just cool – it has serious implications for an AI space with seemingly limitless profit potential and creates a promising investment opportunity for you.
Here’s why…
Spotify Supercharged Its Value Proposition
Spotify’s value proposition just got a major boost with this successful application of artificial intelligence. The app went from strictly user-directed listening to now enabling passive enjoyment as well – and in doing so, solved a big pain point for consumers.
I love rocking out while I whip up dinner for the family – but when a song comes on that I don’t like, I can’t exactly fiddle with my phone while my hands are busy flipping burgers.
There are times when even the most discerning listener doesn’t want to have to think about what they’re listening to or curate their own playlist – just flip a switch and allow someone (or something) else to pick the tunes.
But we all know how hit or miss the average playlist can be. At least, when another human is behind it.
AI knows what you like. It’s able to process your entire listening history in the blink of an eye. And the more you interact with it, the smarter it gets.
That makes AI a perfect solution to the perfect jam sesh.
Personalization Tools for the Win
The better a company can personalize its offerings for customers, the more engaged those customers will be – and the higher its revenue will go.
Not only did DJ X have an immediate and meaningful impact on Spotify’s Consumer Happiness levels, as you saw earlier – but even more telling: Spotify Purchase Intent (PI) Mentions of consumers talking about downloading and streaming Spotify (aka spending money) have increased by 15% from last year:
That’s triple the growth its closest competitor, Pandora Radio, saw during the same period.
An Increasingly Bullish Outlook for SPOT Investors
Spotify has garnered some momentum over the last six months, with shares gaining nearly 60% so far in 2023 in tandem with its expanding active user base.
But at $130 apiece, SPOT is still trading significantly below 2021 levels and 15% lower year-over-year (YoY).
That indicates plenty of room for growth.
Since the company’s revenue is driven primarily through subscriptions – ad-supported revenue accounts for 14% – we believe improvements in advertising spend at large will benefit Spotify in a big way… Especially considering its strong positioning in the ad-friendly podcast space.
Spotify started the year with momentum behind it – recording 205 million premium subscribers (a 14% increase from the year prior) and becoming the first music streaming service ever to claim 200 million active paying members:
Put it all together, and Spotify is a poster child for how best to leverage AI to provide user personalization and improved consumer experiences.
And that has us feeling plenty bullish on Spotify in the long term.
Before you go: Don’t forget to save your spot for our live earnings season kickoff event on Tuesday! Landon and I will be showing you how to trade the most profitable 40 days of the year and trust me – you won’t want to miss it.
Click here to let us know you’re coming.
Until next time,
Andy Swan
Co-Founder