Financial markets can be very welcoming of technologies that promise to change the world, but history is riddled with episodes of irrational exuberance. Investors were right about the Internet but mistakenly rushed to buy technology stocks related to the emerging World Wide Web. The dot-com boom was the first bubble to burst in the 21st century.
Few would doubt that electric cars will soon be dominating the streets, but manufacturers like Lucid, Nikola and Rivian have had an unforgettable year. These companies have been unable to turn a profit and have struggled to catch up with Tesla, which can afford a protracted price war. They also face challenges from the rest of the financially strong auto industry, which wants a slice of the electric vehicle pie.
The two magic words these days are artificial intelligence (AI). Wall Street’s eyes show dollar signs for any company dabbling in AI — it doesn’t even have to be a core business to trigger a stock price jump. News outlet BuzzFeed provided the most surprising episode when it announced in late January that it would use OpenAI’s ChatGPT system to improve its polling and produce some content, tasks currently performed by human workers. All hell broke loose and the company’s devastated stock price quadrupled in two days.
The euphoria soon cooled and BuzzFeed lost half of its market cap. It’s still trading at nearly double its pre-AI announcement price, though there’s no sign the move will significantly improve its financials. Comcast, a major BuzzFeed shareholder, didn’t see this as a panacea and used the stock’s rise to sell shares, reducing its stake in the company from 24% to 15.5%. The sell-off made Comcast lose money it had bought BuzzFeed stock at much higher prices in 2015 and 2016. Comcast’s willingness to take the loss shows that despite the potential benefit of using ChatGPT, it’s not optimistic about recovering its investment.
While the BuzzFeed episode was the most glaring case of AI speculation, it wasn’t the only one. California-based Soundhound AI, which specializes in speech recognition and natural language processing solutions, has seen its market cap rise 150% in 2023 to nearly $700 million.
The company’s website advertises its restaurant solution: “SoundHound’s voice assistant answers every call — even during peak hours — eliminating the busy signal, taking multiple orders at once, and seamlessly processing the order and payment through your POS system.” It also offers Solutions for customer service centers, hotel guest services and a voice assistant for your vehicle. The website example reads, “Find me a Mexican restaurant on my way home that has at least 4 stars, takes takeout, and isn’t a taqueria.”
California-based C3.ai is also taking off this year. It’s an established software provider that works with Microsoft, Alphabet, and Amazon across multiple industries. According to CEO Tom Siebel, the tools allow banks to spend less time applying for loans, prevent power grid outages and optimize airline fleet utilization. “The software can use telemetry data linked to aircraft sensors to perform predictive maintenance and increase aircraft availability by 50%,” says Sibel. The company’s stock price is up 148% since Jan. 1 to a $3 billion market cap.
ripple effect
With widespread media coverage and mega deals like Microsoft’s $10 billion investment in OpenAI, it’s hard to find a company in the industry that is doing poorly. Maryland-based BigBear AI is up 335% in the stock market this year. The AI software company’s customers include the US Army, medical centers and manufacturing companies that need help managing their supply chains.
The ripple effect goes beyond pure AI players. US-based Nvidia, one of the world’s largest chipmakers and a major AI processor vendor, is also doing very well. At a recent investor conference, Nvidia CEO Jensen Huang said the use of its chips for artificial intelligence services like chatbots has surged in the past two months. Nvidia stock is up 65% in 2023 and now has a market cap of $578 billion. Meanwhile, rival semiconductor maker Intel is lagging far behind in entering the AI chip market. Intel’s share price has fallen 3% this year on the Nasdaq index, prompting the company to announce a dividend cut.
Though Microsoft and Google are battling for artificial intelligence dominance on Center Court, their stock prices haven’t been heavily impacted by the AI frenzy. Size and diversification have protected them from volatility, and the giant companies have many other revenue streams, such as cloud computing, PC software, advertising, and search engine businesses. However, they are not fully protected from AI-related impacts. Google has paid dearly for the rushed launch of its Bard chatbot, which aims to challenge Microsoft’s ChatGPT. Bard’s answer was incorrect when asked about the latest discoveries from the James Webb Space Telescope during the February 8 live demonstration. Parent company Alphabet’s share price plummeted 7%, wiping out $100 billion in market value.
Investor capital is impatiently searching for the frontrunners in the artificial intelligence revolution, many of which may not yet exist. Some current competitors will inevitably crash and burn. Whoever finds the needle-in-the-haystack winner will likely multiply their investment many times over, just like a small online bookstore called Amazon once did.
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