Market euphoria in everything artificial intelligence is still going strong, now’s to time to weigh your options.
To get an idea of just how much the markets are now putting stock into the future of Artificial Intelligence, take a look at how they’re reacting to any AI-related news. In early February, stocks of Alphabet slid 9% (or a loss of $100 billion) at one point after its conversational AI Bard produced a factual error in its maiden public demo.
AI, or Artificial Intelligence, is the biggest buzz in the markets right now and for good reason. From being used in self-driving cars to law databases and even the military, AI presents mind-boggling potential.
Not long after their launch, publicly-accessible AI programmes like chatbot ChatGPT (Chat Generative Pre-trained Transformer) or image-generating ones like DALL-E or Midjourney have already caused great interest and uproar, with camps on both sides rapidly forming and debating over ethics and creative potential of these tools.
Why Invest in AI?
Unlike other tech-based trends in recent times like the Metaverse or Blockchain technology, AI seems to show the most promise for real-world applications. In fact, it might not even be appropriate to call AI a trend. It’s been used by Ukraine to (successfully) target Russian forces in the ongoing Russian invasion and in Tesla’s self-driving software. Companies like Netflix use it in its recommendation algorithm, while others like China’s Meitu uses it to retouch and enhance photos.
The craze has already started, with a wave that has seen AI-linked stocks surging. BigBear.ai, an AI-focused software company, saw its trading volume soar 21 times virtually overnight at one point; while media outlet Buzzfeed saw its shares surge 92% after it announced plans to use AI programs to create content.
Based on a recent report from Goldman Sachs Research, it’s projected that global spending on artificial intelligence (AI) will approach $200 billion by 2025.
This growth is significant due to the small starting point, indicating substantial expansion in the AI industry. Economists Joseph Briggs and Devesh Kodnani from Goldman Sachs also foresee that investments related to AI could account for 2.5 to 4% of the U.S. GDP and 1.5 to 2.5% for other leading AI nations in the coming years, assuming their research predictions hold true.
Briggs and Kodnani’s report emphasizes the considerable economic potential of generative AI, which could boost worldwide labor productivity by over 1% each year after being widely integrated. However, to achieve transformative effects, businesses across the globe would need to make significant investments in physical, digital, and human resources. This involves adopting new technologies and overhauling business processes, with a potential global investment nearing $200 billion by 2025 to precede substantial increases in productivity.
The United States is positioned to be at the forefront of this AI revolution, potentially being among the early adopters of AI. On the other hand, countries like China and other major players in the AI field might experience a more gradual and delayed impact from these investments.
AI Stocks to Watch
Microsoft Corp: MSFT
Although OpenAI, the organization behind ChatGPT, might not have shares available for public trading, its primary investor, Microsoft, does. Microsoft, a prominent technology company, has invested $10 billion into OpenAI, valuing the organization at $29 billion. This substantial investment comes in addition to the $1 billion contributed in 2019 and an additional $2 billion in 2021. These investments have reportedly granted Microsoft a 75% ownership stake in OpenAI. Additionally, AI appears poised to become a foundational element of the company, as indicated by CEO Satya Nadella’s assertion that the AI wave will be relentless and will steer the upcoming phase of computing. Consequently, aside from ChatGPT, Microsoft’s resources and expertise will be significantly directed towards AI initiatives.
NVIDIA Corp: NVDA
The statistics indicate that the overall size of the artificial intelligence industry’s demand in 2022 is approximately $387.45 billion. It is projected to experience rapid expansion at a compounded annual growth rate of 20%. By the year 2029, this demand is anticipated to surge to $1.39 trillion. Nvidia foresees the data center business playing a significant role in driving this growth. The demand for data center GPUs from cloud service providers and supercomputer operators such as Microsoft and Oracle is increasing rapidly. According to certain predictions, sales of data center GPUs could potentially reach $30 billion by 2025, a notable increase from the $3 billion recorded in 2018. NVDA is already up more than 130% year-on-year, with analysts forecasting further growth.
Amazon.com, Inc.: AMZN
Even though there was a deceleration in internet expenditures in 2022, the e-commerce industry still holds considerable opportunities for expansion. In the previous year, online transactions constituted 19.7% of global retail sales, and this percentage is projected to reach 24% by 2026. While Amazon has been relatively silent in the AI arms race – with early efforts centered on using AI to improve customer experience – Amazon entered the AI race earlier this year with the introduction of its AI platform named Bedrock. This platform assists businesses in expanding their machine-learning models. This offering is integrated into Amazon Web Services (AWS), granting access to its in-house language models named Titan as well as collaborations with startups like Anthropic and Stability AI. Amazon is also in the process of creating its own chips, namely Inferentia and Trainium. These chips offer AWS customers an alternative means to train their large language models (LLMs) instead of relying solely on Nvidia GPUs, which are becoming progressively expensive and challenging to acquire.
Is AI a bubble?
All the outward signs of a bubble are certainly there – with investor euphoria still going strong on AI and AI-linked companies. Even key stakeholders agree, with Stability AI CEO Emad Mostaque calling AI investing to be the “biggest bubble of all time” in a call with UBS analysts.
That said, Morgan Stanley analysts have come up with some numbers that prove the contrary. The report shows that market bubbles typically experience a median growth of 154 percent in the three years leading up to their peak. However, even though the initial winners in the field of AI have gained more than 200 percent year-to-date, broader AI benchmarks have only risen by approximately 50 percent in 2023 and have not yet surpassed their highs from 2021.
Drawing from their analysis of 70 historical instances of both small-scale and large-scale bubbles over the past century, the authors of the report, Edward Stanley and Matias Ovrum, contend that AI distinguishes itself from other cycles of excessive enthusiasm due to the enduring and widespread diffusion of its technology.
Then, there’s the fact that we are nowhere in easy-money territory, a common precursor to investing bubbles. Global inflation and central bank rates are at, or just recovering from record highs, and large investors are understandably cautious with their money.
All that said, the current growth and volatility found in AI-linked tech stocks present an opportunity for trading, with proper risk management of course.
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