Flybridge AI Index: August 2024 Update
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Summary:
In August, the Flybridge AI Index returned 3%. For the prior 12 months, the Index has returned 32% to its current level of 114% since January of 2023.
Of the 31 active companies in the Index, 21 gained in August and 10 declined in the month. Significant gainers include MongoDB (+22%), and Marvell (+21%). Significant decliners include Super Micro (-35%), and Intel (-24%).
The remaining companies of the Index reported their Q2 earnings, and some of the highlights are noted below.
The growth continues + AI PCs/Smartphones expected growth
In our previous report, we delved deeper into the index by splitting it into two categories: the application layer and the infrastructure and application layer. This time, we've decided to take an even closer look. Our partner Chip Hazard recently gave a talk featuring the graph below, which inspired us to break down the AI index in more detail. We've now split it into three distinct layers: application, infrastructure, and compute/base.
The index reversed July's decline and gained 3% in August. The compute/base layer accounted for the largest portion of the returns, increasing 6.8%, compared to the infrastructure and application layer, which grew 1.2%, and 0.8% respectively.
As everyone wonders if the generative AI wave is here to stay, NVIDIA's earnings report has become a gauge for the market. NVIDIA's results did not disappoint, reporting quarterly revenues $2 billion higher than their outlook, sequential growth of 15% QoQ.
Speaking of NVIDIA, AMD announced their acquisition of ZT Systems which specializes in designing, manufacturing, and deploying server and data center solutions. With this move, they aim to further increase the pressure on NVIDIA. It will be interesting to see how AMD's strategy plays out and to monitor how much market share they are able to capture from NVIDIA.
Intel, another chip vendor, and their inclusion in the Index was one of our most hotly contested debates. On one hand, the compute layer of the AI stack is dominated by NVIDIA, to a lesser extent AMD, plus other specialized players and we felt Intel had missed this wave. On the other hand, there is the expected growth of AI-optimized PCs and AI smartphones. To this point, Intel shared how they expect the AI PC market to grow from less than 10% of the overall market today to more than 50% by 2026. Micron mentioned that customers in the PC and smartphone segments are building up inventories in anticipation of growth in AI-enabled devices.
Before this new GenAI wave, multiple years had passed where users lacked motivation to switch smartphones or PCs. The benefits of upgrading were not significant enough to justify constant changes. Battery life improvements, while useful, had reached a point where they were not perceived as valuable enough by users to warrant frequent upgrades. Beyond some small improvements, most users didn't notice significant changes in graphics and performance in the applications they used day-to-day.
With AI, users now have a new motivation to switch their phones and PCs. The benefit of having more powerful chips that can enable on-device LLM usage will be something that motivates users to upgrade their devices. For example It will be interesting to see the newer iPhone and Samsung sales in the coming years. As more devices become capable of performing AI tasks on-device, it's important for founders to consider how their applications could benefit from this trend.
AI Insights and News:
Tech Companies Q2 2024 Earnings Highlights:
Intel reported their Q2-24 earnings. Some interesting insights included:
Intel expects the AI PC market to grow from less than 10% of the overall market today to more than 50% by 2026.
Reported shipping over 15 million AI PCs since their December launch. On track to ship over 40 million AI PCs by year-end and expect cumulative shipments to exceed 100 million by the end of 2025.
The upcoming Gaudi 3 AI accelerator is expected to deliver twice the performance per dollar in both inference and training compared to current leading solutions, and Intel announced IBM as one of its first customers for its Gaudi 3 AI accelerator Chip. (Techcrunch)
SoftBank held conversations with Intel to rival NVIDIA with their AI processors. However, it seems that Intel was unable to meet the volume and speed requirements, and their focus has shifted to TSMC. This is not a good signal for the market at a time when Intel is trying to recover the ground it lost to NVIDIA.. (Financial Times)
Palantir reported their Q2-24 earnings. Some interesting insights included:
The Department of Defense awarded a $153 million initial contract to Palantir for deploying and scaling an AI-enabled operating system, with potential awards up to $480 million over five years.
Palantir mentioned how many of their existing customers are signing expansion deals, many of which are a result of their artificial intelligence platform (AIP).
Astera reported their Q2-24 earnings. Some interesting insights included:
There is a growing trend of hyperscalers developing their own AI accelerators. Astera Labs has design wins across these internally developed accelerators.
Astera Labs reported record quarterly revenue of $76.9 million for Q2 2024, representing an 18% increase from the previous quarter and a staggering 619% increase from the same period in 2023. This growth was largely driven by their products in AI-based platforms.
Hubspot reported their Q2-24 earnings. Some interesting insights included:
HubSpot has embedded AI into all of its hubs and within its Smart CRM. The strategy to integrate AI without charging extra has been effective, particularly in driving adoption in content creation and marketing workflows.
Sandler reported that HubSpot AI increased new prospect engagement with their brand by 25%, showcasing the tangible benefits of HubSpot's AI features.
HubSpot mentioned that integrating Generative AI has led to a 20% improvement in productivity within its engineering team.
Nice reported their Q2-24 earnings. Some interesting insights included:
One year after the introduction of Copilot and Autopilot, their adoption has been remarkable. In the second quarter, combined bookings for Autopilot and Copilot surged by 134%
Number of deals greater than $1 million ACV that included AI jumped 100% compared to the same period last year.
Palo Alto Networks reported their Q2-24 earnings. Some interesting insights included:
They recently shared that approximately 300 employees were responsible for handling employee support tickets. Last week, they launched an internal AI-powered employee experience system. This new system has already allowed them to reduce the support staff by 50%. They believe this reduction could reach up to 80% as they continue to automate many tasks and use generative AI to answer employee questions.
They reported that their top developers who use the internal coding Copilot are 40% more efficient in coding tasks. For the average developer, they anticipate a productivity increase of 20% to 25%
Snowflake reported their Q2-24 earnings. Some interesting insights included:
More than 2,500 accounts are using Snowflake AI on a weekly basis.
Snowflake is optimistic that its AI products will begin contributing materially to revenue next year.
Jamin Ball shared a summary of their main metrics. Overall, "okay" performance for a company that should be in a great position to benefit from the AI wave. This year, the company's market cap has gone down from its peak of $77Bn in February to $38Bn at the end of August.
NVIDIA reported their Q2-24 earnings. Some interesting insights included:
Revenue of $30 billion was up 15% sequentially and up 122% year-on-year, surpassing their $28 billion outlook.
Similar to what Meta mentioned in its July earning call, they expect next generation models will require 10 to 20x more compute to train with significantly more data.
Over the trailing 4 quarters, they estimate that inference drove more than 40% of their Data Center revenue.
The RTX AI PCs ecosystem continues to grow, with over 200 AI-powered laptop designs and an installed base of 100 million devices, set to revolutionize consumer experiences with generative AI.
Nvidia and Mistral released Mistral-NeMo-Minitron 8B, a highly accurate small language model that can run efficiently on laptops and PCs. (NVIDIA)
Salesforce reported their Q2-24 earnings. Some interesting insights included:
Salesforce unveiled "Agentforce,"which allows customers to build powerful autonomous agents for various functions such as sales, service, and marketing. Early adopters of Agentforce include companies like OpenTable, Wiley, ADP, and RBC.
Salesforce is experiencing strong demand for AI-related products, with 1,500 AI deals signed in Q2 alone
The company expects Agentforce and other AI innovations to be major growth drivers, with projections of having 1 billion agents by the end of fiscal year 2026.
MongoDB reported their Q2-24 earnings. Some interesting insights included:
MongoDB views AI as a significant long-term growth opportunity. While AI has not yet become a meaningful revenue driver in 2024, the company is confident that AI demand is a matter of "when, not if."’
MongoDB launched the MAAP program, which became generally available last month. This program builds on the company’s vector database and includes partnerships with major cloud providers (AWS, Azure, GCP), Accenture, and AI pioneers like Anthropic and Cohere, offering customers reference architectures and integrated technology stacks for building and deploying AI applications.
Micron (Keybanc capital market leadership forum)
Customers in the PC and smartphone segments are building up inventories in anticipation of growth in AI-enabled PCs and smartphones. These devices are more memory-intensive, which is driving demand for Micron's products.
AI-enabled smartphones are expected to have 50% to 100% more DRAM compared to non-AI smartphones. Similarly, AI-enabled PCs are expected to have 40% to 80% more DRAM, with the minimum requirement for running Windows Copilot+ being 16 gigabits.
Note: These insights are focused on AI developments and priorities as discussed in management publications, earnings calls, and other company announcements.
Performance Overview:
Inception (January 2023) to date returns for the Flybridge AI Index are 114%. In comparison, over the same time period the Cloud Bessemer Index returned 28%, the S&P 500 returned 45%, the Nasdaq returned 67%, and the F-Prime Fintech Index returned 115%.
The median NTM revenue multiple was 7.9x.
The median quarterly YoY revenue growth rate was 14%.
The median LTM net income margin was 13%.
Additions/Deletions:
No new additions to the index in August.
The information in the Index is for informational purposes only. Flybridge is not offering investment advisory services, nor is it offering to sell securities.
