Linqto’s AI Investing Playbook

Summary

The rapid advancement of artificial intelligence (AI) has created a dynamic and potentially lucrative investment landscape, necessitating a nuanced understanding of value creation across the AI ecosystem. Linqto’s AI Investing Playbook introduces the concept of “AI Portfolio Tilts,” categorizing the ecosystem into hardware, data infrastructure, and applications. Currently, significant value resides in the hardware layer, with companies like Cerebras and Sambanova Systems leading the charge. As the market evolves, a shift is anticipated toward data infrastructure, exemplified by firms like SingleStore and BigID, and applications, where Large Language Models (LLMs) are becoming a focal point. As AI evolves, investors will need to be adaptive, shifting focus across the ecosystem from hardware to data infrastructure and applications to capture emerging opportunities.

The concept of “portfolio tilts”

The rapid evolution of artificial intelligence (AI) has created a robust and potentially promising investment landscape. As we navigate this evolving market, it’s important to understand where value is likely to accrue and how it may shift over time. This is where the concept of “AI Portfolio Tilts” comes into play.

The AI ecosystem can be broadly categorized into three layers; hardware, data infrastructure, and applications. Our portfolio tilts reflect the current state of the market and our expectations for value creation in each segment.

Currently, the value has primarily accrued in the hardware layer, which serves as the foundation of AI capabilities. Companies like Cerebras, Sambanova Systems, and Groq are essential hardware providers as they off er the tools necessary to train and run AI models. As the ecosystem matures, we anticipate a gradual shift up the value chain, with data infrastructure and eventually applications capturing larger portions of the overall value.

Navigating the ecosystem

The data infrastructure layer is becoming increasingly critical, serving as the bridge between raw data and actionable AI. Companies like SingleStore, which offers unified databases for both transactional and analytical workloads, and BigID, which provides advanced data discovery and governance, are emerging as key players in the infrastructure stack. Their innovations in data storage, management, governance, and security are vital for the development and deployment of sophisticated AI systems.

Large Language Models (LLMs) have emerged as a significant focus area in the AI landscape, sitting at the intersection of data infrastructure and applications. This area has seen a concentration of venture capital funding, as it has become the battleground for AI advancement. Open-source and closed-source models are competing to achieve the best performance, with companies and organizations pouring resources into developing increasingly sophisticated LLMs. This intense competition is driving rapid progress in natural language processing and generating opportunities across various sectors. 

Linqto is not affiliated or associated with, or endorsed by, any of the companies mentioned herein and the information included has not been checked or confirmed in any way by the same companies. All service- or trademarks are the property of their respective owners.

Anthropic, known for its innovative approach to AI safety and ethics, focuses on developing closed-source LLMs with built-in safeguards and alignment with human values. Alternatively, xAI is developing open-source LLMs while leveraging proprietary databases associated with the “Muskonomy”.

Applications, while offering the potential for outsized returns, also present higher risks due to intense competition and a higher failure rate among startups and new entrants. Notably, there hasn’t been a widely recognized killer application beyond ChatGPT that has captured the market’s imagination to the same degree.

This has sparked debates about whether the next big applications will come from existing companies leveraging their proprietary data and established market positions or from new AI-first startups disrupting traditional industries.

On one side, companies like Viz.ai demonstrate the power of combining domain expertise, proprietary data, AI, and regulatory moats in healthcare to become a market leader. On the other hand, AI-first startups like Locus Robotics are showcasing the potential for ground-up innovation by building autonomous robotics solutions for warehouse automation, reimagining logistics operations with AI at the core.

Currently, the value has primarily accrued in the hardware layer, which serves as the foundation of AI capabilities. Companies like Cerebras, Sambanova Systems, and Groq are essential hardware providers as they offer the tools necessary to train and run AI models. As the ecosystem matures, we anticipate a gradual shift up the value chain, with data infrastructure and eventually applications capturing larger portions of the overall value.

Adapting to an evolving market

The market is still in its infancy, and outside of established players like Alphabet, Meta, and Microsoft in the cloud space, Nvidia in hardware, and OpenAI and Anthropic in the foundational model segment, clear winners have yet to emerge in many segments. The AI market is rapidly evolving, driven by continuous AI breakthroughs and the discovery of novel use cases, creating a dynamic environment where today’s leaders may be challenged by tomorrow’s innovations. Given this uncertainty, employing a tactical allocation approach and diversifying across the AI tech stack will allow investors to balance risk and reward, positioning themselves to reap the benefits of value creation in each layer as the market matures and winners emerge.

It’s important to note that AI portfolio tilts are not static. As the AI market matures, revealing its true capabilities and pinpointing optimal implementation areas, investors’ allocations will evolve. Investors should be prepared to adjust their strategy as the landscape shifts.

Important Legal Notices and Disclosures

This information is proprietary property of Linqto, Inc and/or its affiliates (collectively, “Linqto”) and any use, interference with, disclosure or copying of this material is unauthorized and strictly prohibited. This information is provided for informational purposes only and is subject to change without notice. Nothing herein is intended to constitute investment, legal, tax, accounting, insurance, or other professional advice. This material shall not be construed as investment advice, a recommendation or offer to buy or sell or the solicitation of an offer to buy or sell any security, financial product, or instrument or to participate in any particular investment strategy. Linqto does not make any recommendations regarding the merit of any company, security or other financial product or investment strategy in this presentation, or any recommendation regarding the purchase or sale of any company, security, financial product or investment, nor endorse or sponsor any company identified in this presentation. Investing in securities in private companies is speculative and involves a high degree of risk. The recipient must be prepared to withstand a total loss of their investment. We strongly encourage the recipient to complete their own independent due diligence before investing in securities or financial instruments including obtaining additional information, opinions, financial projections and legal or other investment advice. Linqto shall not be liable for any investment decisions based upon the content provided in this presentation. The views and opinions expressed are those of the speakers and do not necessarily reflect the views or positions of Linqto. Linqto makes no warranty of any kind, either express or implied, as to merchantability, fitness for a particular purpose, or any other matter. The information contained herein does not constitute any form of representation or undertaking and nothing herein should in any way be deemed to alter the legal rights and obligations contained in the agreements between Linqto and its clients relating to any of the products or services described herein.