Venture capital firm Andreessen Horowitz (a16z) says it is seeing similarities between the mobile-tech and AI cycles, particularly in the way investors are placing their bets.
In a new edition of the firm’s Charts of the Week, a16z cites data from Morgan Stanley Research and FactSet to illustrate how semiconductor and infrastructure names led the market during the mobile era from 2010 to 2015.
According to the venture capital firm, it took many years before software emerged as a market leader.
“During the mobile-tech cycle, it took about 5 years for software to emerge as the clear market leader. Before then, it was semis and infra (i.e. the enabling capex) that led the way.
More precisely:
Semis like Qualcomm and ARM captured the picks-and-shovels returns from 2010 to 2012 because every smartphone needed chips before any apps could exist; the platform layer (Samsung and Apple) came next by selling all those smartphones; and then software and services came last, and won biggest—Google and Amazon (and the ‘app layer’ more generally) pulled ahead, as value migrated up the stack to where the applications (now running on all that hardware) lived and breathed.”
a16z notes that the AI cycle appears to be following in the footsteps of the mobile-tech era. Nvidia has replaced Qualcomm as the semiconductor leader. Meanwhile, cloud infrastructure, one layer up in the stack, is showing acceleration that defies the expectations for businesses already operating at scale.
“Reported revenue backlogs for the hyperscalers nearly doubled year-over-year in Q4. That’s not supposed to happen to already fully-scaled businesses.”
According to a16z, the third phase will likely see the application layer standing out, highlighting that no software will come to life without the hardware to support the scale.
“In the AI cycle, we know that the application layer is, in fact, scaling—indeed, scaling faster than ever before, albeit mostly on the private side. Speed-to-revenue for AI companies is unprecedented.”
But the firm notes that historical performances do not guarantee future results.
“Whether and when the application layer takes off in the public markets—and brings software back to the fore—only time will tell. But this isn’t the first time that atoms have led the bits.”
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