New to AI technologies? Have a look into StreaksAI
“…Currently trading at 2.9p, just below its IPO price, with a market cap of £11m, STK is something different, a story small cap tech investors might want to follow over the next few months…”
Much of the energy that has driven this year’s surprising market rally was sparked by the sudden realisation that next generation AI is already here, and much sooner than everyone other than industry insiders had expected.
The launch of the ChatGPT service late last year, with its startling capacity to respond intelligently to almost every question asked of it, generated a new wave of investment in the big tech companies that have sunk so many billions into AI technologies, powering a surge in the S&P 500, up nearly 20pc this year.
But with the big, obvious trades now seemingly exhausted, investors have to work harder to find securities capable of realising new value from the AI boom. One option is to look at the relatively unsung micro caps making use of the technology. Here we consider StreaksAI (LON:STK), a pioneer in the emerging field of AI based ‘conversational technologies’. STK uses powerful Natural Language Processing (NLP) text generators like GPT-4, the ‘generative AI’ platform behind ChatGPT, to offer services in the gaming and conversational AI space.
What is generative AI?
Before taking a closer look at STK it’s worth pausing to understand the technologies in which the company specialises, and why they are so important. Generative AI refers to the most recent developments in the science of NLP, the capacity of computers to process and generate text and other language-based mediums, including software code, images and scientific structures. The technology identifies patterns within vast data sets to generate large language models (LLMs) able to respond intelligently to questions posed by humans.
Exponential advances in computing power over the past few years allowed the Microsoft-backed company OpenAI to release ChatGPT last November, which stunned users with its ability to rapidly roll out seamless paragraphs of text in response to virtually any query, becoming – with more than 100 million subscribers – the fastest-growing consumer software product ever made. GPT-4, the AI model behind the technology, has been trained on millions of text sources, including websites, newspapers and books. Other examples include Google’s PaLM, which is used in its chatbot Bard, and image-generation AI, such as DALL-E 2 and Midjourney.
AI is generating so much excitement – and concern – because it is perceived as a ‘general-purpose technology’ with the capacity to shift the foundations of the world economy, rather like the invention of the steam engine, electricity, or telecommunications. The first applications of generative AI technologies are already widely used in chatbots, search engines, and the text-to-image generators used by advertisers, video game designers and film production teams. Much more will follow as big tech mobilises its bottomless resources. Last year, Amazon spent $64bn on capital expenditure, up 59pc from 2020. Meta invested 108pc more, Microsoft 55pc, and Alphabet 41pc.
Tech stocks surged earlier this year, supercharged by investor speculation about AI’s rapidly evolving possibilities. Nvidia, which has announced record sales of its AI-friendly graphics processing units, has led the charge, soaring 170pc in the first half of the year. But as the big companies have become crowded trades, it has become less obvious how investors can ride the AI mega trend.
One option is to look at smaller innovators like STK which fall below the mainstream’s radar. The company listed on the LSE Main Market in January, raising £3m through the issue of 100 million shares at a price of 3p. The company’s leadership team has considerable experience in the consumer technology market. Non-Executive Chairman Michael Edwards is a co-founder of Argo Blockchain, an enterprise-scale provider of cryptocurrency mining services; Guild Esports, a global esports franchise; Pioneer Media Holdings, an investment company focused on mobile gaming, esports and the metaverse; Cellular Goods, the first producer of biosynthetic cannabinoids to join the LSE; and NFT Investments, the first publicly traded vehicle for the new NFT asset class. CEO Robert Rutledge also heads Carraway Capital Corp, is a co-founder of Sosido Networks, a knowledge-sharing community for health-care professionals, and a director of Pioneer Media Holdings, a web3 gaming infrastructure company, and AQRU, focused on opportunities in decentralised finance.
On joining the LSE STK was known as Streaks Gaming, reflecting the company’s focus on a ‘conversational gaming’ platform through which users attempt to win prizes by answering questions about a given topic. STK’s revenue model seeks to introduce users to online betting, in the company’s words seeking ‘to exploit the arbitrage available between the cost of signing customers to its free to play app and the rewards paid by established sports betting companies for referrals via the Company’s platform that lead to first time depositors.’ STK wants to introduce a model already well established in the UK and Europe to the US, and is making some headway in the NFL and NBA markets.
The company has so far signed commercial partnerships with 14 brands, including FanDuel, DraftKings and BetMGM, the latest, in March, with William Hill US. STK’s deals give it access to more than 90pc of the US sports betting market, according to market share reports published by Eilers & Krejcik. And the company’s most recent year-over-year user growth statistics, published in January, reported ‘a significant increase in key metrics’: a 378pc increase in registrations, rising from 24,401 in 2021 to 116,519 in 2022; a 325pc rise in unique players, going from 18,440 in 2021 to 78,347 in 2022; 374pc growth in contest entries, up from 108,466 in 2021 to 514,252 in 2022; and a 309pc surge in total entrants’ predictions, which increased from 1,081,493 in 2021 to 4,423,344 in 2022.
As yet, however, STK has failed to record sales, reporting a loss for the 12 months ended 28 February 2023 of £3.3m (2022: £0.6m). The company is seeking to broaden its offering, in June announcing a second flagship product, Streaks Social, a platform targeted at social media influencers, to be launched in Q3. The new ‘social AI’ platform will allow influencers to better connect and monetise their fans through an avatar powered by NLP technology. Fans will be able to chat with a virtual model of their chosen influencer – a demo is available – which responds to questions by analysing content produced by the influencer already available online. Users will pay credits to interact with the avatar, earning loyalty points for frequent interaction. STK says that ‘extensive engagement with fans on the existing AI driven gaming platform’ allowed the Streaks team ‘to recognise the potential and power of conversational AI and how powerful it is to provide an AI that genuinely embodies a unique persona.’
The new venture signals STK’s intentions to apply conversational AI to wide range of applications. The company is committed ‘to leveraging cutting-edge technologies in the realm of NLP text generators like GPT-4’. Last month STK signalled its open-ended commitment to AI beyond the realm of gaming by changing the company’s name from Streaks Gaming to StreaksAI.
Like so many companies in the fast-moving world of AI STK is well able to impress with a compelling narrative. But like its peers, the company’s story must, of course, be considered with due caution. STK’s user base may be growing, but it has yet to report revenues. Much depends on the success of the new platform, the prospects of which are hard to assess, a bold effort to tap into an influencer economy appealing to a Generation Z market distant from the concerns of the ordinary investor.
But this is the kind of stock that investors seeking to tap the AI market beyond the tech giants must be alert to. Here, fortune favours the brave. Currently trading at 2.9p, just below its IPO price, with a market cap of £11m, STK is something different, a story small cap tech investors might want to follow over the next few months.