This $500B AI Market Could Kill the Smartphone

After I attended CES in January, I wrote about Lenovo’s vision for where AI could be headed next.

Together with Motorola, the company unveiled a wearable AI assistant designed to be worn around your neck like a pendant.

But instead of waiting for you to give it commands, this device is meant to follow you throughout the day and understand what’s happening around you.

Just a few months later, and the entire industry seems to be moving in a similar direction.

Meta is aggressively expanding its smart glasses push. Amazon recently acquired the wearable AI startup Bee. OpenAI is reportedly developing hardware with former Apple designer Jony Ive. And Apple is rumored to be exploring AirPods with built-in cameras that could help AI systems better understand a user’s surroundings.

But the goal here isn’t to turn your earbuds into a GoPro.

These companies are trying to build AI systems that can understand context without constantly needing instructions.

And if they get it right, we could be entering the biggest change in human-computer interaction since the smartphone era began.

Smart Wearables

The tech industry has several names for the idea of passive AI that works in the background and helps users navigate daily life more naturally.

I prefer to call these new devices “smart wearables.” And I believe they could be about to reshape the relationship between people and technology.

Our interactions with computers have mostly stayed the same since PCs were first introduced back in the 1970s. We type a search, tap a button or give a command. In other words, we’ve adapted ourselves to machines.

Smart wearables are an attempt to reverse that relationship.

Instead of waiting for instructions, these devices are designed to continuously gather context and understand what’s happening around you. That could include your location, who you’re talking to, what you’re working on or even patterns in your daily routine.

And I know this might sound a little unsettling, but the reality is… it’s already happening.

For example, your smartphone tracks your location. That’s how it remembers where you parked your car. The streaming platforms you use study your viewing habits, and your navigation apps can predict traffic before you even leave the house.

The difference is that those systems operate in silos. One app might know where you are. Another knows your calendar, and yet another knows your search history.

Companies are now racing to build AI systems that can pull all of that data together into a single layer of intelligence.

And that could create some surprisingly useful experiences.

Imagine leaving a meeting and asking your AI assistant, “What were the three action items we discussed?” Or asking it, “What restaurant did my friend recommend a few weeks ago?” Or having your AI assistant quietly remind you that the person you’re about to meet has a child graduating this month.

Those examples might not sound revolutionary, but the small conveniences these devices promise could soon become an indispensable part of your life.

After all, the smartphone didn’t become dominant because people desperately wanted mobile apps. It succeeded because it put dozens of useful tools into a single device that you could easily carry.

And the money involved here could prove to be just as enormous.

Smart wearables are already big business. Depending on the estimate, the market is around $100 billion today. But it could easily grow into a $500 billion-plus industry over the next decade.

And the opportunity extends far beyond watches and fitness trackers. There are smart glasses, rings, earbuds, bracelets and, of course, pendants.

Nearly every major technology company suddenly seems interested in this space, so who knows what other kinds of devices they’ll invent next.

And I believe there’s an even bigger story here.

During the smartphone boom, some of the biggest winners were the suppliers that provided the parts that made smartphones possible.

Now think about everything required to make these new gadgets work: microphones, sensors, cameras, memory chips, AI processors and software that can understand context in real time.

That’s one reason I’m paying close attention to the hardware and component suppliers behind these systems.

Qualcomm (Nasdaq: QCOM) is one example. Qualcomm’s technology serves as the “brains” behind many popular smartwatches, AR glasses and AI-centric wearables. That’s one of the main reasons it’s in our Strategic Fortunes model portfolio.

Because I realize many of these new devices will probably fail.

But the companies supplying the picks and shovels could benefit no matter who wins.

Here’s My Take

What excited me about Lenovo and Motorola’s device back in January was the idea that AI might eventually work differently than it does today.

Instead of demanding attention, it could fade into the background and simply become part of our daily lives.

Of course, some people won’t want devices that constantly watch, listen and collect their information. Battery limitations, privacy concerns and simple social awkwardness could also slow adoption.

Just look at what happened to Google Glass.

Yours Truly Beta Testing Google Glass in 2014

But it seems to me that people are becoming more willing to accept tradeoffs if the utility of a new device is compelling enough.

Smartphones brought location tracking, cameras everywhere and a level of personal data collection that would have sounded prohibitively invasive just twenty years prior. But most people accept smartphones today because their benefits outweigh those concerns.

And if these new AI systems become genuinely useful, I suspect the same thing will happen again.

Regards,

Ian KingChief Strategist, Banyan Hill Publishing

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