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As we venture further into 2023, the AI ​​industry is making waves in global markets with substantial revenue and profit growth in the first quarter. In an environment characterized by persistent cost inflation and slowing economic growth, the demand for AI solutions has never been higher. Companies are rapidly adopting these solutions, turning to AI as a strategic priority. This change is reflected in the AI ​​ecosystem represented in the THNQ index.

Major generative AI players like Microsoft, Alphabet, and Nvidia have naturally drawn attention. However, this concentration and overweighting of a few tech giants has led to the undue neglect of other promising companies, seen blatantly as major indexes and US equity markets see a concentration in tech stocks of 5-7 megabytes. -caps, eclipsing many opportunities among smaller players.

AI State of Mind – Income UpdateAs of May 18, 2023, the THNQ index was up 23% year-to-date (YTD). Clearly, interest in AI is at an all-time high, but deployment and adoption is still early, with enterprises and Microsoft via OpenAI ChatGPT currently getting the most attention. Adoption metrics and planned investments in AI have tripled in the past year across government, healthcare, business and consumer sectors, indicating growing direct access to this transformative technology. Despite all this, investors have yet to invest in the broader ecosystem. As of May 18, THNQ was still trading at 32% of all-time highs, with valuations trading at 5.3x Forward EV/Sales against an all-time average of 6.8x.

AI State of Mind – Income Update

Breaking down performance and expectations so far in 2023

Diving into 2023 performance and expectations so far: The THNQ index, with 70% of members reporting, saw 60% beat EPS expectations with a median beat of 16.4%. Notable sectors showing resurgence include semiconductors (+35%), consumer (+37%), big data/analytics (+27%) and cloud providers (+25%). Meanwhile, Networks & Security (+16%) showed a more mixed performance after years of eclipsing its peers. We see it as an indispensable, though often overlooked, component of autonomous systems and generative AI that ensures scalability, availability, and trust. Looking ahead, the outlook is promising with an increasing number of companies expected to turn a profit or strengthen their profitability over the next year.

Company Highlights:

  • C3.AI, a leading artificial intelligence and business consulting firm, recently announced an increase in revenue and net income and forecasts a 100% increase in the 12-month business qualified pipeline expected at closing. C3.AI is trading well below its former all-time highs and has plenty of room to grow into new accounts, territories, and use cases.
  • Arista Networksthe industry leader in cloud networking performance technology for large data centers (like Azure AI Cloud that powers ChatGPT training and ongoing operations), saw a 54% increase in revenue compared to the previous year, defying any neutral or negative cloud sentiment.
  • Quick7 continues to perform in the current, more difficult macroeconomic climate, with higher margin expectations and a slight increase in revenue expectations. Cybersecurity mergers and acquisitions have been very active from both strategic and large takeover companies, which is also upside potential.

As automation continues to permeate our daily lives, the percentage of total GDP allocated to the AI ​​ecosystem in sectors such as manufacturing, logistics, robotics, commerce, municipal services and army is likely to increase. This ecosystem, although under-reported and facing a limited weighted allocation due to current market capitalization biases, stands to benefit massively. Major players need to invest in this infrastructure to continue to develop secure and reliable platforms. This is evident as layoffs are announced alongside an increase in AI infrastructure spending. We anticipate that the areas of Big Data/Analytics, Cloud Providers, and Network & Security will be major beneficiaries and cornerstones of this booming market. Members of the THNQ Index have ample opportunity to develop and expand their TAM globally while raising the bar for quality of life.

By: Zeno Mercer, Senior Research Analyst, ROBO Global

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