Don’t get caught in the hype surrounding AI when investing your hard-earned money.

Wednesday: The Independent Investor FROM THE DESK OF MILES EVERSON: Hello! Welcome to “The Independent Investor!” Every Wednesday, we bring you articles about investing because we believe this activity can help you attain wealth creation and achieve true financial freedom. Today, we’ll share with you another investing insight that will help you become a better investor. Continue reading to know why you shouldn’t get caught up in the hype surrounding AI. CEO, MBO Partners Chairman of the Advisory Board, The I Institute

Don’t get caught in the hype surrounding AI when investing your hard-earned money. For most of 2023 and 2024, artificial intelligence (AI) has dominated mainstream media, with many billing it as a key disruptor in both the tech and business worlds. This kind of coverage and sentiment aren’t surprising since AI tools developed by firms like OpenAI have shown the potential to drastically change how people and businesses solve problems. However, this has led to an AI mania of sorts, enough that even a single mention of technology can send a company’s stock soaring. Earnings calls have even turned into a competition for who can mention AI the most. According to Robert Spivey, the Director of Research at Valens Research and Altimetry Financial Research, this is exactly what he and his team saw with a popular clothing-rental provider. Spivey says when this business said it was using AI to boost sales, its stock doubled by more than half based on that news alone. Unfortunately, some investors were so caught up in the AI frenzy that they weren’t able to see through this piece of news. An Unprofitable Company that has Supposedly Gone through an AI Transformation Rent the Runway is a popular clothing rental subscription service where users can rent and purchase clothes for special events or everyday use. It was founded in 2009 by Jennifer Hyman and Jennifer Fleiss, a pair of American entrepreneurs who met in Harvard Business School. During the firm’s April 2024 earnings call, Hyman, the CEO, provided listeners with a promising image of margin and cost improvements. She said the firm has “turned the corner” and is working on leveraging AI to improve its search feature, which excited eager investors. Even though Rent the Runway has yet to turn a profit, the business expects revenue growth of 1% to 6% in 2024. Spivey and his team think that this is unlikely to happen because when they looked at the firm’s Embedded Expectations Analysis (EEA), Rent the Runway’s Uniform return on assets (ROA) has been negative since going public in 2021. Additionally, the rental subscription service booked a USD 113 million loss in 2023, a slight improvement from the USD 139 million it lost in 2022. The company isn’t projected to be profitable until 2025, when returns might reach 2%. Despite these numbers, the market still expects Rent the Runway’s Uniform ROA to reach 4% by 2028 as seen in the table below. The company has yet to turn a profit yet some investors are ignoring the numbers because they are so caught up in the AI mania that the marketing is seeing. Time will tell whether this company can truly turn itself around. Until then, Spivey and his team will keep a close eye on the situation. The key takeaway? As an investor, don’t get caught up in the hype surrounding AI. While it is clear that the technology can do wonders for businesses, you cannot let that cloud your judgment when looking for stocks to buy. As seen in Rent the Runway’s example, some investors have completely ignored the warning signs regarding the company’s profitability because they’re so caught up in the AI hype.     ANNOUNCEMENT: Discover the key to navigating the lucrative world of resource investing! On July 7 to 11, 2024, The Rick Rule Natural Resource Symposium will return to The Boca Raton in Florida to deliver unparalleled and profitable insights on resource and commodities investing. In this one-of-a-kind event, you’ll have the chance to get front-row access to exclusive insider insights, participate in sponsored breakfasts, lunches, breakouts, and panel sessions, as well as join first-class celebrations with an exciting speaker lineup. My friend and colleague, Professor Joel Litman, will be speaking in this symposium. I highly encourage you to join this event! This symposium is thoughtfully crafted to ensure you walk away with your own personalized resource and commodities investment plan for the year ahead. Register now through this link to secure your slot. You have an option to register as an onsite attendee or via livestream only. Hope to see you there! Hope you’ve found this week’s insights interesting and helpful.