I remember when I saw my first iPhone. One of my college friends had bought the device and was gleefully showing it to everyone he could.
At the time, most people thought it was nice… but not that nice. (Many felt that about our friend’s enthusiasm, too.) The 2007 iPhone was slow, chunky, and took forever to load webpages. Even Wall Street wasn’t that impressed. Apple Inc. (AAPL) shares were trading at a split-adjusted $4.35 on the iPhone’s launch date in June 2007 and rose just 15% over the following two months.
But the iPhone was monumental. By moving the internet from desktop computers to portable phones, Apple created a crossover moment where one technology enters a new realm. Over the following years, Apple revolutionized how people accessed the internet and became the world’s most valuable company. Every $10,000 invested in Apple in 2007 would be worth $543,460 today.
Apple investors are not the only ones who have used technological crossovers to turn small investments into fortunes…
- The steam engine was initially used to raise water from mines… until an enterprising mining engineer decided to strap one onto a set of coal wagons, kickstarting a railroad revolution.
- Radio waves were first used to transmit Morse code before being co-opted for radio and TV broadcasting.
- Transistors were initially used in telephones, not PCs.
Each of these crossover moments created vast new opportunities for early investors.
And now, the same is happening with AI.
In a special free broadcast this week, senior InvestorPlace Senior Analyst Louis Navellier will discuss how AI is on the brink of its own crossover event. Over the next several months, we’re going to see AI move from the narrow world of ChatGPT and similar models to something far bigger.
In other words, AI is about to be far more than just a chatbot… and it’s going to make new fortunes for investors who play things right.
Of course, I’d like to tell you exactly what AI is crossing into.
But the editors have insisted that we let Louis do so in his special presentation.
So instead, I’ve been allowed to reveal two stock picks that illustrate how AI is so close to a crossover moment… and how these two firms could rise 50% or more as the technology approaches this critical point.
Bringing AI Into the Classroom
Online course companies face an existential threat from AI. ChatGPT can replace tutors, provide high-quality homework help, and more. Even top schools and universities struggle to understand how to incorporate AI into their programs.
But one company seems to have cracked the code:
Duolingo Inc (DUOL).
The Pittsburgh-based language learning firm has used AI to help provide exceptional experiences. The company uses an AI model named “Birdbrain” to adjust exercise difficulty, and offers several generative AI products like Explain My Answer and Roleplay. Last year, Duolingo added video calls to its product lineup, allowing users to converse in real-time with a judgment-free AI bot. (Management even used the bot in place of its CEO during its Q3 earnings call remarks.)
In other words, Duolingo has successfully brought AI into the classroom… and it’s seeing the financial results. In its most recent quarter, paid subscribers rose 47% from the prior year to 8.6 million. Revenues increased 40%, while net income surged eightfold to $23.4 million. You might even have friends or family who excuse themselves to sign into Duolingo to “keep their streak alive.”
This has turned Duolingo into an A-rated firm, based on Louis’s Stock Grader quantitative system. The company scores strongly on sales growth, earnings growth, and institutional buying, which are all historical signs of future gains.
The company also has significant room to grow. Less than 50% of Duolingo’s revenues currently come from students studying English. That figure could grow as high as 80% to match the broader language-learning market. In addition, Duolingo’s early success with AI Video Chat suggests it could succeed at teaching more subjects… or even license the technology out to schools and colleges someday.
Either way, AI is making a jump into classrooms. And Duolingo is on the cutting edge of that trend.
Moneyball in the AI Era
In 2003, author Michael Lewis published Moneyball: The Art of Winning an Unfair Game. The now-famous 288-page book follows the Oakland A’s baseball team and the unusual strategy of its general manager, Billy Beane.
Using a data-driven approach (rather than a traditional one based on instinct), Beane built a world-class team from a tiny $44 million budget. The A’s reached the playoffs in 2002 and 2003, and Beane would eventually be memorialized in a movie of the same name.
Today, AI is taking over the world of Moneyball. Many professional baseball teams now use machine learning (a form of AI) to recommend pitches… suggest form improvements… even shift defensive fielders based on where the ball is likely to go. In fact, Major League Baseball (MLB) recently banned defensive shifts in anticipation of AI algorithms making the game too boring.
Baseball isn’t the only sport that’s using AI. Artificial intelligence is now used to model soccer matches… judge gymnastics… and help coaches make play-by-play decisions in American football.
So, how can investors benefit from AI entering the world of sports?
You may have seen us talk about sports-betting firms like DraftKings Inc. (DKNG) as an indirect beneficiary of AI in sports. These online betting firms (much like traditional casinos) use AI to filter through customer data and improve engagement. That leads to better customers, higher usage, and larger profits.
But an even more direct way to play AI in sports is through Sportradar Group AG (SRAD), a company partially owned by the MLB that distributes real-time sports data to companies like DraftKings and high-frequency traders.
Sportradar is a Swiss firm with exclusive rights to the MLB’s official ultra-low latency data stream and media content. Any firm wanting to play Moneyball must quite literally go through Sportradar for the data. The contract was renewed last week and will run through 2032.
The firm also provides data for other professional leagues, including the NBA, the NHL, FIFA, the International Olympic Committee and more. In total, Sportradar works with 400 sports leagues and federations.
That’s turned Sportradar into an AI powerhouse. The firm uses this enormous amount of data to generate over 10 billion live odds changes a year, which it sends to over 800 betting operators and 900 media and tech firms. The company also offers value-added services like risk management, augmented streaming, and chatbots. Analysts expect Sportradar to see a 14% increase in revenues in 2025, and for its high operating leverage to power a 71% rise in earnings per share.
The company scores a solid “A” in Louis’s Stock Grader (up from a “B” last year) thanks to these solid growth metrics. The firm also scores well in Louis’s proprietary “following the money” score, which tends to indicate more gains to come.
The AI Crossover Moment
It wasn’t long ago that generative AI was seen as having a limited role. In late 2023, a study funded by the U.S. National Science Foundation found that generative AI consistently created “verbal nonsense,” and that the mistakes should “give us pause about the extent to which we want AI systems making important decisions, at least for now.”
Online pranksters had a grand time fooling chatbots into making ludicrous statements. One memorable instance that year involved Chris Bakke, a tech startup founder, provoking a customer service chatbot to sell him a Chevy Tahoe for $1.
No takesies backsies
But the technology has come a long way since then. We’re seeing AI begin to expand into areas like education… sports betting… and more.
The next stage will be even bigger. That’s because AI will begin to move beyond these software-oriented roles into something different…
Earlier this year, Nvidia Corp. (NVDA) CEO Jensen Huang pounded the table about this crossover, calling it “AI’s next frontier”… and said it’s a $100 trillion opportunity.
Now, Louis is sitting down to explain AI’s crossover moment in his AI Crossover Summit, and to share details on seven AI crossover companies poised for triple-digit surges.
You can catch Louis’s free broadcast here.
Please note that our offices, including Customer Service, will be closed this Monday in observance of Presidents’ Day.
Hope you all have a wonderful long weekend, and I’ll see you back here next week.
Tom Yeung
Markets Analyst, InvestorPlace