Investors demand AI adoption proof amid hype: Fmr. Cisco CEO
The AI buzz has turned a new leaf as companies move from expressing interest in the trend to investors expecting results from adoption. Former Cisco Executive Chairman and CEO John Chambers joins Yahoo Finance's Brian Sozzi to break down what investors should consider and how tech companies — both big and small — have to do to get ahead of the game.
Chambers insists that AI is essential, stating “those companies that get AI right are going to see explosive growth." Investors are making “careful selection[s]” and in order to stand out, there has to be a strong incorporation strategy, Chambers notes, later echoing "this is the decade of AI" and the trend shouldn't be a cause for concern or fear.
Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.
Video transcript
BRIAN SOZZI: Who better to talk tech than former Cisco CEO and current leader of JC2 Ventures, that is John Chambers? John, it's been a while. Thanks for coming back to Yahoo Finance.
JOHN CHAMBERS: I come back every year--
BRIAN SOZZI: I appreciate it.
JOHN CHAMBERS: --and I'll always be there for you.
BRIAN SOZZI: Well, I appreciate that. So look, I think a lot of folks on Yahoo Finance are trying to figure out, did we just get the best it's going to get within some of the big cap tech names? Some of these stocks are selling off. I mean, how do you see it? What's coming down the pipe for these names?
JOHN CHAMBERS: Well, in the long term, I think you're just at the front end of a huge emergence of next generation technology. It will be around AI. So for your viewers, think of mainframes, minicomputers, the PC, the internet, the cloud. Now those companies who get AI, right, are going to have explosive growth both for your big companies, like you saw from Microsoft, ServiceNow reporting today et cetera on it. And if you don't, you get left behind.
Now, is there going to be a consolidation? Absolutely. And if you look at the indicators, let's use startups as an example.
There were a huge number of unicorns and decacorns created in 2021. Those numbers are now just 10% for unicorns and 15% for decacorns. So you're seeing investments in terms of the careful selection start to change.
Overall, this will be the decade of AI and it will transform every company, every individual, et cetera. And it shouldn't be feared. We've just got to say, how do we operate within it? But if you're investing in companies that not only don't have a good AI strategy, or as Bill McDermott said, are executing AI strategy, you're probably going to be disappointed.
BRIAN SOZZI: Well, then are you just surprised to see these stocks sell off or is it-- or how quarterly. I mean, you used to get up there. No matter what Cisco reported, you got up there on TV and talked about it. I mean, are these sell offs just overdone just given what you're talking about?
JOHN CHAMBERS: No, I don't think so. I think people are still sorting out the winners and losers. Brian, as you know historically no large leader in one area like mainframes ever was the leader in minicomputers. No large leader in PC and servers was the leader in the internet. Historically, people have not made that transition well.
However, maybe for the first time, you're seeing a Microsoft make that transition. Meta's numbers were pretty good, up 23% on it. But it does speak to normally the startups and I'm a huge startup backer. I've got 9 unicorns out of 20 companies. And none of them--
BRIAN SOZZI: 20 companies now?
JOHN CHAMBERS: Yeah. And none of them have had a down round yet. In fact, my players that I bet on seven years ago like a unicorn are up almost 100x since I invested $2.5 billion. And we think we're just getting started.
So I think for your listeners, you've got to pick out who are going to be the winners and losers, not just can they talk AI. Talking AI was the right thing six months ago, today you better be producing the results.
BRIAN SOZZI: Do you see a consolidation wave? Microsoft, all that cash, Alphabet, all that cash, do you think they'll acquire some of these unicorns and decacorns out there?
JOHN CHAMBERS: I absolutely think they will. But I think we've got to be careful here. You don't want companies to be too big and too powerful because sometimes they misuse it. So I think we've got to be very careful.
Innovation comes from the startups. That's where our innovation has always occurred. So we've got to make sure they have a fair footing in terms of growth.
But are my companies partnering with these big companies? Absolutely, partnering with the Microsoft, partnering with an AMD, partnering with a ServiceNow, et cetera. And that's what I think the industry is like.
But for your other viewers, the non-tech companies-- and by the way, every company will become, first, a technology company. You know, I've talked about that for a decade. Now, I'd argue, this is the digital age going to the logarithmic age.
Every company will become an AI. So you're going to see these large companies partnering with startups. Often partnering rather than acquiring because they want the startups to continue to maintain the momentum.
BRIAN SOZZI: As someone that managed and led a very large organization through the dot-com bubble, what is your advice right now to this next generation of tech leaders, these AI companies that are, kind of, operating in a similar environment? Not totally the same, but something similar.
JOHN CHAMBERS: So the question you're asking me, are we in a bubble? The answer is yes. However, those companies that emerge out of this bubble will emerge in great shape.
The average unicorn valuation is down in the secondary market versus their last round-- and I'm just now understanding that market-- by over 50% in terms of what they trade in the secondary market. So that's a nice way of saying many of the unicorns will never be unicorns again. Same thing with some of them, they got a little bit ahead on the hype.
However, as this industry consolidates and the winners become more obvious just like the winners in prior generation of the cloud, which ended up being Microsoft, and Oracle, and Google, et cetera, on it, you're going to see the same type of emergence on the AI group. So in total, would it be a great field to be in? Yes. Is the breakage going to be dramatic? Yes.
And what's different is the speed of change. If you look at your numbers just for your audience, we've had the tightest correcting ever in terms of tightening in the market. That is 1,500% per year. That is seven times the fastest that's ever occurred before.
And we had the highest stimulus, five times faster than 2008 for a year and a half with $5 trillion in stimulus. That's a nice way of saying with all these variables you're not talking about combined with geopolitical issues, odds on a soft landing are going down. There's only really been one soft landing in the last 60 years.
But I'm a pilot by background. If I land that plane, it bounces a couple of times on the tarmac, I'm OK. That's what I hope we get here.
BRIAN SOZZI: I still have yet to find, in my career doing this, someone that is, I think, in the leadership role traveled as much as you have, talked to as many world leaders as you have. This is a very uncertain time--
JOHN CHAMBERS: It is.
BRIAN SOZZI: --to be the CEO of a company given what we're seeing in the Middle East, Ukraine and Russia. How should a leader be leading at this particular moment?
JOHN CHAMBERS: Well, I think that you and I have talked about the trends for the last four years. We were the first ones, I think, on your show actually predicting that this virus coming out of Southeast Asia is going to have major economic impact on March of 2020. It turned out to be very good.
In 2022, you and I talked and we talked about COVID would no longer be the key issue. It will be inflation. And now we're talking about agility being the key issue. I think agility is the key here.
Secondly, for your investors and others, cash is about to be king in a big way. There's going to be a liquidity crunch for big companies, smaller companies, the consumer. Consumer savings are down dramatically versus pre-COVID areas and down almost 20% from the second year within the COVID group.
So as you think about this, you've got to say how do you play in that environment? You're right, I'm headed off to India Friday night. I'll be meeting with all the government leaders in India.
BRIAN SOZZI: Still at it.
JOHN CHAMBERS: Oh, I love it. And if you're going to bet on one economy, bet on India. If you're going to bet on two, bet on India twice.
Modi has a 78% approval rating. We don't have a leader here in this country who's over 50. And his economic plans for his country are amazing. US and India, tight alignment in terms of direction.
But I would think this world of uncertainty is here to stay. I've never seen as many variables at one time. I know the Middle East very well.
I'm very close to Israel and our hearts and souls go out to the horrific issues that occurred there. But I'm also very close across the rest of the Middle East and that's where a lot of the capital is coming in. It can be benefiting America as well and startups.
BRIAN SOZZI: Is it important for a CEO to speak out at a moment like this?
JOHN CHAMBERS: I think when CEOs-- this is my view. When CEOs speak out, they don't need to speak out on every single topic. I think implying that we're an expert in each category is wrong. When you know a topic well or you have investments like I've done for 30 years in Israel-- Shimon Peres was a great friend till his passing four years ago, maybe one of the best leaders I've ever seen-- you have to speak out in that area.
And it's unacceptable for what the terrorists did in that area. But you've also got to speak out, we have to bring peace. And Shimon was also the person that taught me, you never get peace without a middle class and a startup community. So I like what I see occurring in the rest of the Middle East in terms of across areas such as Saudi Arabia, and Kuwait, and Qatar that they're beginning to develop more of a middle class, encouraging investments, transition their economy, more inclusion. Still a long way to go.
So I think it is to speak out where you have expertise. Where you don't have expertise and speak out on every topic, I personally think that leaves the CEO exposed. What do you think?
BRIAN SOZZI: I like that I'm actually seeing more CEOs speak out, John. I think this was not-- this would not have been the case four, five, or six years ago, but it's good to get their views on certain things. Before you came on, we just had Mattel CEO Ynon Kreiz. He has lived in Israel. So to hear him speak out and hear about how he's donating and helping that cause, I think, is very important.
JOHN CHAMBERS: Well, you know, using Israel as an example-- it's the start-up nation for a reason. They will be resilient. And I literally led the peace mission after the Hezbollah-Israeli conflict of over a decade ago into Lebanon for President Bush and seeing what would be the recommendation on it out.
Israel is very resilient. They will come through this. It's traumatic and it's probably going to last longer than you think. I think it's important for us to be there. And President Biden, I think, commitment was an important message to send.
BRIAN SOZZI: John Chambers, always great to get some time with you. Really, it's always really a treat. JC2 ventures leader, former long-time Cisco CEO, safe travels to India. Good to see you.
JOHN CHAMBERS: Good. Look forward to seeing you on the next trip.
BRIAN SOZZI: Absolutely.
JOHN CHAMBERS: Thank you my friend.
BRIAN SOZZI: We'll talk to you soon.
