Riding the AI wave

ChatGPT reached 100 million users by the end of January, and naturally with these types of trends, companies and investors alike are jumping at the chance to get involved. When first launched, it was suggested that this could pose a threat to Google’s dominance in search and, in response, parent company Alphabet accelerated the release of their competitor application. AI is not a ‘new’ technology, however it has resulted in a large amount of attention both within and outside of the investing community. In terms of share price appreciation, this enthusiasm has benefitted those companies whose revenues are solely reliant on AI, which tend to be smaller in market capitalisation.  So, are we in an AI bubble or is this a trend that, particularly in stock markets, has some legs?

Chatbots are a long-standing technology application. Most of us will be resigned to being confronted by the assistant that appears when we attempt to interact online with a dizzying array of service providers. The release of ChatGPT has bought new awareness to the possibilities of the technology. Microsoft has a controlling stake in OpenAI, which has alerted the investing community to the potential this technology may have. The company have incorporated the technology into the Bing search engine and Edge internet browser and previously within the Azure ecosystem in mid-2022. Alphabet, being dominant in search, last week previewed Bard, with the release accelerated in response to the hype generated by ChatGPT. However, the tool delivered a factually inaccurate response in an advertisement to mark the launch of the application and the share price of Alphabet declined by 7.7% on the day. The Chinese technology company, Baidu, also have plans to release a chatbot. It is not just the mega cap tech companies who are sharing their plans to integrate AI, media companies such as Buzzfeed saw its stock briefly appreciate by over 200% when it shared plans to use ChatGPT to generate content for its website. Similar to the dot-com bubble and the blockchain craze, companies are fearful of being perceived to have not considered the application of a revolutionary technology.

The rapid appreciation in share prices of companies associated with the AI ecosystem may have the market concerned about an AI bubble. C3.ai, a small AI-focused company which has been able to secure the ‘AI’ stock ticker, is up over 100% YTD. Another company, BigBear.ai, has announced the securing of government contracts for the use of its AI applications and is up around 560% YTD. These are remarkable returns for unprofitable companies with, as yet, unproven business models.

The dot-com bubble enabled many companies now considered household names to emerge both stronger and as more diversified businesses. Perhaps, the same could be true for one or more of these AI start-ups. However, those with larger budgets will undoubtedly be able to dedicate more resource to developing applications for this technology and acquire those with promise – as seen by the controlling interest of Microsoft in OpenAI and the seeding of various companies by Alphabet. Whether these small companies can satisfy the optimism endowed in them by the market is unknown and unknowable, but the technology is being incorporated into tools that power our daily lives and we will watch this space with interest.