Artificial intelligence has been a mainstream idea for years, dating back to the days of the Terminator movies when man and machine were at war. But the recent popularity of ChatGPT, an AI-powered chatbot, has Wall Street looking at the technology in a new light. While ChatGPT and related technologies could help some businesses, they could hurt others.
Disruptions are always lurking and companies like Amazon (AMZN -0.97%), Meta Platforms (META 0.26%) and Fiverr International (FVRR -1.50%) should be looking over their shoulders. Because of this, these three companies could be vulnerable to the potential AI revolution.
Could OpenAI’s Popularity Threaten AWS Growth?
Justin Pope (Amazon): OpenAI’s ChatGPT has become a technological sensation. The chatbot recently hit 100 million unique users just two months after launch, making it the fastest growing app in history. How does this affect Amazon? The cloud platform from Amazon (AWS) is currently the world market leader. The business segment is Amazon’s cash cow, responsible for all of Amazon’s operating profit in 2022.
Cloud platforms are essentially internet infrastructures. Instead of paying and maintaining their computer systems and servers, companies can rent the resources as needed from cloud platforms like AWS. OpenAI’s explosive popularity could make it a focal point for developers building AI tools into future apps and businesses. The problem for Amazon is that cloud competitor Microsoft, which owns Azure, has partnered with OpenAI and has invested heavily in OpenAI.
A key detail of the Microsoft-OpenAI deal is that Azure will be the exclusive cloud provider for all OpenAI research, product, and API service workloads. In other words, Azure could benefit from broad exposure to everything OpenAI going forward. Amazon’s earnings growth could take a hit if OpenAI becomes a factor in developers’ decision to use Azure over AWS as their cloud platform.
Amazon has some AI capabilities within AWS, but the technology can often produce “winner takes most” scenarios, so ChatGPT’s record-breaking growth should be taken very seriously. While AWS is likely to continue to grow from the big growth opportunities within the cloud space, investors should watch for changes in market share between Amazon at 34% and Microsoft at 21%. Lost share means less operating revenue for Amazon, which relies heavily on AWS for its bottom line.
The artificial intelligence stock that got investors thinking
Will Healy (Meta Platforms): Approximately 3.7 billion people used a Meta Platforms website at least once a month as of the fourth quarter of 2022. While this is an achievement most companies would envy, it also accounts for 47% of the world’s population. Between people avoiding social media and those who can’t afford the technology to get onto a platform, the company likely has few new potential users to track.
To that end, Meta has turned to an AI-driven digital space called the Metaverse to fuel growth. In fact, its meta-AI has reported successes in this area, ranging from predicting the spread of COVID-19 to mimicking human negotiation skills with Cicero. Such achievements can likely make Meta a force in artificial intelligence.
Unfortunately, investors turned away from Meta’s strategy as revenue and profits plummeted while R&D costs soared. The decline was so dramatic that a stock that was trading at $384 per share in August 2021 fell below $90 per share in 14 months.
Like many stocks, Meta rallied and has doubled since the October low. And by historical standards, the current P/E of 21 for this stock may seem cheap, especially given that the slumping digital advertising market should eventually recover.
Additionally, its apps generated $114 billion in revenue in 2022. Given the $2 billion in revenue from Reality Labs, its virtual reality arm, investors could easily ignore the segment’s 5% revenue decline.
Unsurprisingly, CEO Mark Zuckerburg no longer wants to talk about the metaverse. But while that brought temporary relief to investors, it could also mean that app-driven revenue will level off soon. Unless Reality Labs drives growth, investors may stop viewing the 21x P/E as cheap.
Therefore, the failure of its AI-powered Metaverse offering likely makes Meta the Coca-Cola or McDonald’s of the tech industry. In other words, it’s a global company that lacks new markets in which to drive growth. Until Meta can’t leverage its technology effectively, its stock could continue to disappoint growth investors.
ChatGPT makes me pessimistic about the prospects of this company
Jake Lerch (Fiverr International): There’s no doubt – the artificial intelligence (AI) revolution will wipe out some jobs. After all, there are many examples in history of new technologies making once lucrative jobs obsolete. I’m looking at you, Mister Telegraphist.
With new language tools like ChatGPT gaining popularity, it’s only natural to assume that some jobs will be threatened. In particular, professions that rely on expert language skills (e.g. writers, proofreaders, editors) could be targeted. Likewise, companies that benefit from matching freelancers with employers could feel the pinch.
Take Fiverr International, a web-based platform that connects freelancers with buyers. While it’s true that many of Fiverr’s freelance positions aren’t easily threatened by AI right now, I have two concerns for the company — one short-term and one long-term.
First, the immediate concern I have for Fiverr is reputational risk. Suppose only one freelancer on the platform is secretly using ChatGPT to complete assignments. In this case, Fiverr risks alienating its buyers, who assume they are paying for human-made content.
Second, Fiverr’s business model could be threatened in the longer term. As ChatGPT and similar AI chatbots continue to improve, buyers may not have a problem paying for AI-generated content. And that content will likely be cheaper – and much quicker to produce – than the man-made alternative.
In any case, Fiverr’s current fundamentals remain mixed at best. The company is unprofitable with an operating margin of -15.1%. Meanwhile, quarterly revenue growth has slowed to 11% — well below the 100% peak reached in 2021.
Undoubtedly, the rise of AI will create winners and losers, and it’s entirely possible that Fiverr could be one of the losers.
