VRSSF - VERSES AI: Pioneering Active Inference In AI Software

2023-10-16 15:25:05 ET

Summary

• VERSES AI is a company focused on building a smarter interconnected AI-powered world, using a neurobiological approach to AI development.
• VERSES is developing an AI operating system called KOSM, which integrates AI with IoT, robotics, blockchain, and AR/VR. Other AI products are also actively being developed.
• VERSES AI Active Inference approach to AI development sets it apart in the highly competitive AI space.
• Challenges VERSES could face include translating the products into substantial revenue.

Thesis

It is no longer a question that AI is the latest disruptive technology. AI's popularity and widespread adoption have surged in the past year, thanks to the new-found potential of generative AI, made popular by apps like OpenAI's ChatGPT and AI-powered image generation models like DALL-E. AI's ability to revolutionize business operations, enhance decision-making processes, and drive innovation is being felt across virtually every industry. This makes AI a solid investment choice as our society and industries are rapidly transforming amid the Fourth Industrial Revolution (4IR). AI is undoubtedly one of the backbones of the 4IR. This analysis delves into VERSES AI's (VRSSF) products, unique value propositions, and the company's prospects in the highly competitive AI software space.

Company Overview

VERSES AI Inc., formerly called VERSES Technologies Inc. before rebranding in March this year, is an AI company focused on building a smarter interconnected AI-powered world in which people and technology find a mutually inclusive common ground in sharing and utilizing data. VERSES AI takes a neurobiological approach to AI, giving AI next-generation abilities that make it interoperable and the ability to "think for itself." VERSES AI uses the Active Inference approach to AI development. Unlike Large Language Models (LLM) which are trained on large datasets and use pre-trained data in making decisions, Active Inference uses real-time data. Active Inference draws inspiration from Bayesian predictive inference and neuroscience. VERSES AI Chief Scientist, Karl Friston, is credited with and widely recognized for developing the concept of Active Inference .

Products and Unique Value Propositions

Among several AI products, VERSES AI is building an AI operating system ((OS)) for distributed intelligence. VERSES' proprietary AI OS is called KOSM, which VERSES says is the world's first network operating system for distributed intelligence. KOSM integrates AI with IoT, robotics, blockchain, and AR/VR in the physical world, producing results in the physical world. The OS, which is currently open for beta testing, interacts on users' behalf in the real world. Developers can also leverage the Active Inference capabilities of the OS to develop AI applications for anything without the need to pre-train AI models.

VERSES AI has also announced the development of an AI-powered personal assistant which it calls GIA (General Intelligent Agent). GIA is designed to "learn about its users in order to better organize, manage, and optimize their digital life." Users will be able to customize GIA for their data, allowing the AI app to perform day-to-day tasks, like responding to emails in real time and booking rides and appointments, on behalf of users. In a February press release , the company announced that GIA was slated to be released in Q3. A peruse of VERSES AI's official website shows that GIA hasn't been launched yet, but early sign-up access for GIA is underway. The company is also building a version of GIA for enterprises, which will aggregate an enterprise's data from data sources and learn and customize the data in real time for the enterprise's needs.

With unique features like automating data organization, predictive reasoning, and the ability to learn over time, GIA is poised to become the first intelligent all-in-one solution for anyone seeking a smarter way to organize, manage, and automate their personal and professional activities.

VERSES AI Official Website

In its Q3 Corporate Update last month, VERSES AI unveiled another product, GENIUS, which is set to offer AI as a Service (AIaaS), empowering individuals to create their AI apps. This move aligns with the emerging trend of AIaaS in the AI industry. AIaaS is becoming a trend in the AI space. Several big tech companies, like Amazon , have already ventured into offering AI and machine learning as a service.

In addition to its ambitious products under development, VERSES AI has forged impressive collaborations. In July, VERSES was selected by the European Union to help build a project code-named the dAIEDGE project. The project aims to "create a Network of Excellence Centers for AI-based edge solutions," combining AI with edge computing.

While there is a healthy dose of competition in the AI space, I believe, VERSES AI's approach to AI development, using Active Inference, gives the company a unique and innovative edge and the potential to stand out in the highly competitive AI field. VERSES AI has a solid and well-versed team in its area of focus. The announcement , late last year, of Karl Friston as the company's Chief Scientist further solidified the company's commitment to pioneering Active Inference in the development of AI-powered applications.

Financials and Valuation

VERSES' financial situation is relatively healthy, and I see the potential for revenue growth and profitability moving forward; though some risks abound, which I talk about in the risk section of this analysis. On the income statement , the latest reported revenue (Q2) is $300k; while both operating and net income are negative. The negative income can be attributed to R&D and SG&A expenses. The financial statement shows a combined $6 million spent on R&D and SG&A for Q2. This situation is typical for companies that are in the active development stage for their products.

The balance sheet shows sufficient liquidity to cover short-term obligations. Total current assets, as of the latest financial report, sit at $10.9 million, which is greater than total current liabilities of $9.2 million. I particularly like the fact that Cash And Equivalents make up about 56% of VERSES AI's total current assets, sitting at $6.2 million. As a company focused on building AI software solutions, I believe that having an ample amount of cash gives VERSES AI the advantage to offer competitive salaries and to readily hire and retain top AI talent. Also, AI software development is fast-paced and may involve quickly scaling up infrastructure and resources to meet demand; for example, an unprecedentedly high demand for GIA could prompt VERSES AI to rapidly deploy additional servers to scale and meet such demand. Readily available cash can facilitate this scalability without delays. The cash flow statement also shows a positive net change in cash for Q2, indicating cash generation.

Since the start of this year, AI-focused companies have enjoyed good momentum, thanks to the AI hype. VRSSF stock is up over 100% YTD. This is on par with most AI-focused companies, like C3.ai ( AI ) and Palantir Technologies ( PLTR ), which have seen their stocks gain at least 100% this year. VRSSF stock seems to have lost momentum in the past three months. I think this is a healthy correction and is a result of the general cool-off that AI stocks have seen recently, following the hype phase of late 2022 and early this year.

Risks

While VERSES shows promise in the highly competitive AI software space and has compelling products and partnerships, potential investors should consider several other risks.

High Competition

The AI industry is marked by intense competition, with many well-established players and startups. The ability to maintain a competitive edge and capture market share will be crucial for VERSES AI's success.

Market Penetration

The success of VERSES products like KOSM, GIA, and GENIUS depends on effective development, timely launches, and user adoption. Postponement of release dates, technical challenges, or market acceptance issues could impact the company's growth and market penetration.

Revenue Generation

VERSES' latest reported revenue of $300k and the negative operating and net income means that the company will need to translate its product offerings into substantial revenue to achieve profitability. I think the company has substantial work to do in this regard.

Takeaway

VERSES is a company worth watching in the AI space. The company's neurobiological approach to AI, through Active Inference, sets it apart in the highly competitive AI space. The company is actively influencing research and development of standards for the spatial web. While the journey ahead is promising for VERSES, challenges loom, including the need to translate products into substantial revenue.

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