Celebrities, AI, And Cloudflare: The Digital Authenticity Revolution!

Software using artificial intelligence is impersonating experts and even evolving into make-believe social media influencers. AI is here to replace us.

These digital replicas are exploiting a legal gray area, according to a report last week from Politico. Training chatbots based on copyrighted material isn’t illegal, so, digital authenticity is a big opportunity.

Investors should buy Cloudflare
NET
Inc. (NET) into weakness.

Remington Scott had a big idea in 2008 while working on a film with Will Smith. Scott was a visual arts director responsible for collecting scans of Smith from every possible angle. That 2D data was then translated to 3D computer generated imagery to be used on film. Scott transformed that idea into Hyperreal, a company that helped actors monetize their digital likenesses.

Authenticity is now more important than ever, and it is not simply so celebrities can sell soda and fast food without showing up on the filmset. AI is blurring the lines of ownership.

Martin Seligman is an am American psychologist. His influential work in positive psychology was recently replicated by a chatbot created by Yukan Zhoa, a former graduate student. Zhoa and his team imputed all of Seligman’s published works into a cutting-edge AI software algorithm. Virtual Seligman was born.

Politico notes that virtual Seligman is part of a growing wave of AI chatbots based on real humans. Meta Platforms
FB
(META) is working with celebrities to bring some of these online. Others are dead historical figures, casually imparting wisdom. Imagine chatting with Winston Churchill about events leading up his famous “We Shall Never Surrender” speech. And the Financial Times reported last week that brands are now paying $1,000 per post from AI-generated social media influencers.

What is interesting about all of these AI digital replicas is that they were developed using data scrapped without attribution or fees, from every corner of the internet. Although much of this information is copyrighted, it is not clear there is any way for rights owners to collect licenses, let alone shut down the bots.

This legalized body-snatching is the opposite of the vision imagined 16 years ago by Scott when he oversaw the digital scanning of Will Smith.

Without any fight, humans have surrendered their digital rights to likeness and thought. Certain digital businesses like Meta, Alphabet (GOOGL), Microsoft
MSFT
(MSFT), and Apple
AAPL
(AAPL) have built sprawling platforms based on authenticating their members. The platforms have become online gatekeepers.

Cloudflare (NET) makes cloud-based software services to enhance performance, security, and reliability of the large digital platforms. The San Francisco-based company was founded in 2009, and has grown from sales in 2020 of $431 million, to $975 million through the end of 2022.

To get there, executives employed a unique business model. The basis of Cloudflare is so-called serverless computing. Corporate customers are billed for backend services on an as-used basis, as opposed to a contract for a fixed minimum usage. This structure provides infinite flexibility. It also affords companies the ability to spin up new capacity without the need to write and deploy additional code. This is a huge advantage over models that can be extremely expensive, especially during activity spikes during cyberattacks.

The Cloudflare network advantage is global scale. Executives at the company claim Cloudflare is the most connected network, with operations in hundreds of cities across the world. All of these locations reduce latency, making the delivery of digital photos and streaming media much faster. Caches copies are systematically stored in the edge of the network.

Cloudflare sales have been growing at nearly 50% annually for the past three years, although revenues should decline slightly in 2023.

Matthew Price, chief executive officer, said in November that third quarter revenues reached $335.6 million, up 32% year-over-year.

At a share price if $83.26, Cloudflare stock trades at 154.1 times forward earnings and 23 times sales. While these metrics are expensive by traditional markers, the business is growing fast and managers have established a strong position helping the largest digital platforms to establish authentication and network security. These services are vital online users begin to worry more about digital authenticity.

The stock traded in $212. Investors should continue to accumulate shares into weakness.

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