Intro'ing Flybridge's AI Index 🤖

Track public AI companies

May 28, 2024

Hi friends,

In past innovation waves, VCs have created useful public market indices to track the performance of companies in specific emerging markets, such as the Bessemer Cloud Index and the F-Prime Fintech Index. Given the new AI wave and Flybridge’s focus on the market, we developed the Flybridge AI Index to track the performance of public companies in the underlying capital markets in this space. We believe this trend will be one of the largest value creators in history and are excited to see how these companies, and more to follow, perform over the years.

We conducted this analysis for several reasons. As early-stage investors for many decades across many economic cycles, we have seen how crucial it is for founders to have a clear understanding of what drives value in the public markets. By closely monitoring public market trends and comparables, they (and we) can make more informed decisions as they scale their companies. The companies included in this analysis could also potentially become acquirers for some of our startups, making it important to track their growth and strategic priorities.

There is a prevailing notion that incumbent companies will emerge as winners in the GenAI space due to their vast data resources and established distribution channels. We believe that conventional wisdom is wrong. Although we see massive opportunities for founders, we want to closely monitor this trend to validate or challenge this assumption.

As you review this analysis, we welcome your thoughts and feedback, as well as suggestions on companies we may have overlooked or should have excluded.

Flybridge AI Index

The chart below showcases the performance of the Flybridge AI Index in comparison to major technology benchmarks from January 2023 to April 2024. The data, accurate as of May 20, 2024, is sourced from EOD Historical Data, the Bessemer Cloud Index, and the F-Prime Fintech Index.

As evident from the chart, the Flybridge AI Index has demonstrated impressive growth over the 16-month period, outperforming the other technology indices. This outperformance highlights the significant impact that generative AI companies are having on the market and underscores the immense potential for value creation in this space.

It is important to note that while the Flybridge AI Index provides a valuable snapshot of the AI industry's performance, it is not intended to serve as investment advice. As with any investment, thorough research and due diligence are essential before making any financial decisions.

Valuation Multiples

A closer look at the valuation multiples of the companies in the Flybridge AI Index reveals that the market is assigning a significant premium to businesses that are leading the AI revolution. As of May 20, 2024, the median Enterprise Value to Next Twelve Months Revenue (EV/NTM Revenue) multiple for the index stands at 10.9x.

This valuation multiple is notably higher than those of other technology indices. For comparison, the Bessemer Cloud Index and the F-Prime Fintech Index have median EV/NTM Revenue multiples of 6.0x and 2.5x, respectively. This disparity suggests that investors are placing a higher value on the growth potential of AI-focused companies.

Geographic Dispersion

The map below illustrates the geographic distribution of the companies included in the Flybridge AI Index. While the West Coast, particularly California, dominates the landscape with 57% of the index constituents, other regions are emerging as major AI hubs. New York and Massachusetts, for example, are home to notable companies such as MongoDB, HubSpot, Entegris, IBM, and UiPath.

Another fascinating aspect of the index is the distribution of company founding years. Interestingly, only two companies in the index, Snowflake and Astera Labs, were founded after 2010. Eight companies were established between 2000 and 2010, while the majority (59%) of the index constituents were created before the turn of the millennium.

Methodology

To construct the Flybridge AI Index, we established a set of criteria to identify public companies that are at the forefront of the Generative AI revolution. These companies are characterized by their significant investments in AI research and development, the launch of innovative AI-powered products and services, and their strategic focus on leveraging AI to drive future growth.

Criteria

Our criteria encompass various aspects of a company's AI initiatives, including the centrality of AI to their business model, the proportion of revenue attributed to AI products, and their expectations for AI-driven growth. We also consider their role in the AI technology stack, their partnerships and acquisitions in the AI space, and their ability to attract top AI talent.

Source Material

To gather comprehensive data for our analysis, we relied on a wide range of source materials. These include investor update presentations, earnings call transcripts, SEC filings, industry reports, academic publications, and insights from industry experts and analysts. By examining these diverse sources, we aim to capture a holistic view of each company's AI strategy and performance.

Weighting

When it came to weighting the index, we made the deliberate choice to use an equal-weighted approach. This decision was driven by the presence of tech giants like NVIDIA, Google, Meta, and Microsoft in the index, whose massive market capitalizations could potentially overshadow the contributions of smaller companies. By assigning equal weights to each constituent, we ensure that the index provides a more balanced representation of the AI industry's performance as a whole.

Start Date

The starting point for the Flybridge AI Index is January 1st, 2023. While we recognize the long history of AI research and the significance of the "Attention Is All You Need" paper in 2017, we believe that the launch of ChatGPT in late 2022 marked a pivotal moment for the mainstreaming of generative AI. This event catalyzed a surge of interest and investment in AI technologies, setting the stage for the rapid advancements we are witnessing today.

Companies

This is the list of companies included in our initial analysis. Based on our methodology, we’ll update this list over time.

  1. Adobe: Creative software company integrating AI into its products and successfully monetizing AI features.

  2. Alteryx: Cloud analytics platform empowering organizations with AI-powered analytics and machine learning.

  3. AMD: Semiconductor company enhancing its AI capabilities with integrated AI processing units and accelerators.

  4. Arm Holdings: Designs energy-efficient processors powering AI across various devices.

  5. Astera Labs: Provides connectivity solutions for optimizing AI infrastructure performance.

  6. Broadcom: Develops custom AI accelerators and AI-optimized networking hardware.

  7. C3.AI: Offers enterprise AI software solutions across various industries.

  8. Entegris: Supplies materials and solutions to semiconductor companies, benefiting from AI-driven demand.

  9. Equinix: Provides infrastructure supporting AI operations, particularly for distributed AI applications.

  10. Google: Pioneer in AI research and development, offering AI-related services and embedding AI into products.

  11. Hubspot: Incorporates AI capabilities into its CRM core product to help customers extract more value from data.

  12. IBM: Brings AI capabilities to its large enterprise customer base through its watsonx platform.

  13. Marvell Technology: Offers custom compute solutions and Ethernet switching optimized for AI applications.

  14. Meta: Leading open-source player in the AI ecosystem with its LLAMA models and AI-powered features.

  15. Microsoft: Integrates AI capabilities into its offerings and partners with leading AI model providers.

  16. MongoDB: Database company storing customer data that can be utilized for AI applications.

  17. Nice Systems: Develops proprietary AI solutions for customer experience and financial crime compliance.

  18. NVIDIA: Central player in AI development, providing essential GPUs for AI processing and applications.

  19. Palantir: Offers AI-powered data analytics and decision-making tools for government and commercial clients.

  20. Palo Alto Networks: Offers AI-driven cybersecurity solutions and targets significant growth in AI-related revenues.

  21. Salesforce: Integrates AI capabilities into its products and leverages customer data for AI-driven solutions.

  22. ServiceNow: Prioritizes AI integration into its workflows and develops domain-specific models.

  23. Simulations Plus: Provides AI-driven software for drug development and machine learning applications.

  24. Snowflake: Stores customer data for AI model training and offers its own generative AI model.

  25. Synaptics: Develops AI-enabled processors for IoT devices, leveraging edge AI technologies.

  26. TSMC: Plays a crucial role in the global semiconductor supply chain essential for AI hardware development.

  27. UiPath: Invests heavily in AI, offering integrated AI capabilities and generative AI experiences.

🥳 Events - We’ve got a great lineup of events during New York Tech Week. If you’re in town, we’d love to see you. From AI Demo Day, to a more intimate breakfast with Flybridge.

🏠 Lumos House - Andrew Yeung, a partner at Next Wave NYC, is hosting a 4-day experience for tech's most extraordinary founders, builders, and leaders taking place in a private mansion.

🎙️ TalkTastic - ​A voice-driven AI writing assistant for Mac that works across all apps. It uses your screen as context to translate your spoken thoughts into clear, stylistically-appropriate writing with accurate name spelling. Join the beta.

👋 Hi, I’m Jesse, a seed-stage VC at Flybridge. If you’re building or investing in an AI-driven future, reply to this email with a short message. If you’re local to NYC, I’d love to catch up over coffee.