The Rise of AI Stocks: A Growth Opportunity or Speculative Frenzy?
Artificial intelligence (AI) has become the latest buzzword to whip traders into a speculative froth, reminiscent of past bubbles. Companies that have AI in their names have experienced blistering rallies in their stocks, which is reminding veteran market professionals of previous crazes like the one in 2017 sparked by blockchain technology.
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The Case for AI Stocks: Microsoft and Nvidia as Beneficiaries
1. Microsoft Corp. is investing $10 billion in OpenAI, a company that is seeking funding and cloud-computing power to run increasingly complex models. Microsoft has said it plans to use OpenAI’s models in current and future products.
2. Semiconductor maker Nvidia Corp. has also been touted by Wall Street analysts as a beneficiary of greater investment in AI since it dominates the market for graphics chips that provide the computing power behind the software models. Its shares rallied 34% in January, Nvidia’s best month in almost six years.
The Tenuous Case Behind Other AI Stocks
1. BigBear.ai Holdings Inc., which uses artificial intelligence to help customers analyze data, saw its shares soar almost fivefold last month.
2. BuzzFeed Inc., the media company that’s been cutting costs amid a slump in digital advertising, jumped more than 300% over two days last week after its CEO pledged to make AI-inspired content part of its “core business.”
3. C3.ai Inc., another software maker which counts Raytheon Technologies Corp. and Baker Hughes Co. among customers, rallied a record 77% last month.
The Warning Against Speculation
This euphoria surrounding AI has led market professionals to warn buyers to beware. “We’ve had tons of episodes like this before where a group becomes hot and everyone just piles into everything related to it,” said Michael O’Rourke, the chief market strategist at Jonestrading. “As far as everyone who’s betting on names and tickers, it will be a wild ride for them. If you’re speculating, you’re not investing."
AI's Popularity Continues to Grow
Despite this warning, AI’s popularity shows no sign of slowing down. OpenAI’s ChatGPT tool has generated a lot of excitement about the potential use cases for AI since it debuted late last year.
The Future of AI Stocks
1. Baidu Inc., China’s largest search engine company, also plans to roll out a chatbot service similar to ChatGPT, according to a person familiar with the matter, though the news this week failed to lift the stock price.
2. Until the bubble bursts, O’Rourke said he wouldn’t be surprised to see companies adding AI to their names or a jump in secondary stock offerings as executives seek to capitalize on the euphoria.
3. While investors need to be cautious, it’s clear that AI is a growth area that companies and traders alike are keen to get involved in. As AI technology continues to advance, it’s likely that we will see more investment and more opportunities in this area.