Instead of building AI models, a company can create immense value by being 'AI adjacent'. The strategy is to focus on enabling good AI by solving the foundational 'garbage in, garbage out' problem. Providing high-quality, complete, and well-understood data is a critical and defensible niche in the AI value chain.

During the dot-com crash, application-layer companies like Pets.com went to zero, while infrastructure providers like Intel and Cisco survived. The lesson for AI investors is to focus on the underlying "picks and shovels"—compute, chips, and data centers—rather than consumer-facing apps that may become obsolete.

Instead of building AI-native companies facing intense competition, a viable strategy is to build "AI-durable" businesses. These are in real-world sectors (e.g., funeral homes) where the core service isn't disrupted by AI, but operations can be significantly accelerated by it.

Instead of betting on which AI models or applications will win, Karmel Capital focuses on the infrastructure layer (neocloud companies). This "pick and shovel" strategy provides exposure to the entire ecosystem's growth with lower valuations and less risk, as infrastructure is essential regardless of who wins at the top layers.

As base models improve, simple vertical AI co-pilots are a dangerous investment. Dave Morin advises that defensible opportunities lie in the orchestration layer (managing multiple agents) and in applications that generate unique, proprietary data through real-world interaction, like robotics.

The AI investment case might be inverted. While tech firms spend trillions on infrastructure with uncertain returns, traditional sector companies (industrials, healthcare) can leverage powerful AI services for a fraction of the cost. They capture a massive 'value gap,' gaining productivity without the huge capital outlay.

Rather than picking a winning AI or crypto, the smarter investment is in the 'picks and shovels.' This means focusing on the infrastructure every autonomous agent will require to transact—such as wallets, custody services, and blockchain rails—regardless of which specific application succeeds.

AI makes it easy to replicate successful software, diminishing moats. This threat of being "vibe coded" pushes early-stage investors like Hustle Fund to seek defensibility by backing more complex, harder-to-copy infrastructure and hardware companies instead of just applications.

To capitalize on the AI boom while mitigating risk, investors should focus on 'enablers'—companies providing essential infrastructure like semiconductors, data centers, and cloud services. This 'picks and shovels' strategy avoids betting on specific application-level winners, which was a losing strategy for many dot-com investors.