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Is ChatGPT the New Netscape?

Earlier this week in HX Daily, we revisited the period where my career started twenty-nine years ago.

From an economic point of view, we see many similarities in the economy and interest rates.

Another significant similarity we discussed in that issue was the potential that the recent emergence of artificial intelligence may be like the emergence of the first wave of excitement about the Internet.

We think our reader base has a broad cross-section of ages, so many of you likely were there with me. For many of you, however, and even for us older folks, it is hard to remember everything.

This is why I was so fascinated to dive back into the story around the IPO of internet browser software company Netscape.

How many of you remember THAT company?

For those who do not remember – Netscape was the FIRST big pure-play internet company to IPO in the stock market.

Internet service provider (ISP) giant America Online had gone public back in 1992, and by the time Netscape went public, it had over one million subscribers to its dial-up internet service.

(Side note – every time I write or think of the word "dial-up," I hear this sound…)

Famed venture capitalist Jim Clark founded the company and initially named it Mosaic Communications Corporation. Jim recruited a rising young technology star named Marc Andreesen as his co-founder.

They recruited the premier venture capital firm (Kleiner Perkins) and launched their first web browser – Mosaic Netscape 0.9, in October 1994. This software took most of the browser market within just a couple of months. It was soon re-named “Netscape Navigator” and became one of the dominant names of the early Internet.

The company went public less than a year earlier, on August 9, 1995.

We remember this day very well as I had only recently started my Wall Street career at Lehman Brothers. Even though I worked in the bond department that summer, the entire firm was buzzing about this offering.

The shares were supposed to be priced at $14 per share, but at the moment, they decided to DOUBLE the price to $28. It soared to over $75 per share and ended at $58.25 and a market value of almost $3 billion. The company had still not made a profit…

Almost thirty years later, all of this seems normal. Back then, though, this was one of the craziest things anyone had ever seen!

Money-losing companies didn't go public, IPOs seldom doubled on the first day, and there was no way you had a company trading at a $3 billion valuation right out of the gates…

Over the next few years, Netscape would engage in a battle for browser market share with software giant Microsoft (NASDAQ: MSFT). This eventually ended with the company selling itself to Internet giant America Online.

While ChatGPT has yet to go public, we see many similarities between the companies.

The Internet technically existed for a few years before Netscape became public. Still, that IPO brought it to the attention of most folks.

The same could be said for ChatGPT. Artificial intelligence has been around for decades.

We were writing about it at our prior firm five years ago. Legacy technology giant IBM Corporation (NYSE: IBM) has been touting its "Watson AI" technology for many years.

It was only the ability for people to interact with the ChatGPT's software that brought it to everyone's attention. This is the same as that first great Netscape browser.

Do you know who one of the early investors in ChatGPT's parent company, OpenAI, was?

Marc Andreeson. He became the founder of one of the most successful venture capital companies of all.

There is a story about Netscape that, early on, Microsoft Corporation (NASDAQ: MSFT) approached them about a partnership to split the browser market. Microsoft denies this because it would have been highly illegal.

Do you know who the biggest investor in OpenAi is? Yes, Microsoft.

It looks like they are learning from their mistakes…

The most exciting part of this analogy to us is how the story might play out for Open AI and ChatGPT.

Thinking back to the early days of the Internet, we remember how many companies had leading positions but did not become industry behemoths.

The ones with the earliest success – like Netscape – still became successful companies. Many investors even made money off them.

Netscape was sold at a value about +50% higher than the initial value of the IPO trading price. A few years later, in 1999, that value was three times higher.

Being early in these types of companies most likely makes you money. Still, it's being determined who will be the eventual winner.

Howard explains direct-indexing, and why it’s for the masses, as well as thoughts on AI, why he picked Apple decades ago, all the while reminiscing on the good old days of the blackberry.

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