Buyers Beware of Artificial Intelligence Stocks

Stocks linked to artificial intelligence (AI) have rallied sharply recently and are benefiting from the new technology's euphoria.  However, the blistering rallies of many of these AI stocks may have sparked a speculative bubble that may end badly, like the dot com bubble of 2001 or the buying frenzy of blockchain technology stocks in 2017.

During the dot com buying surge and the blockchain technology frenzy, there was a dash for exposure into the stocks, only to see the rallies fizzle and many stock gains disappear.  Jonestrading said, “we’ve had tons of episodes like this before where a group becomes hot, and everyone just piles into everything related to it.”  While AI is undoubtedly a huge growth opportunity and a theme that investors should take seriously, “buyers should beware.”

The popularity of OpenAI’s ChatGPT tool has sparked excitement about the potential uses for AI since it debuted last year.  Microsoft (MSFT) said last week that it was investing $10 billion in OpenAI, which needs funding and cloud-computing power to run increasingly complex models.  In addition, Microsoft said it plans to use OpenAI’s models in current and future products.

Nvidia (NVDA) rallied 34% in January, its best month in nearly six years.  Analysts have touted Nvidia as a beneficiary of more significant investment in AI since it dominates the market for graphic chips that provide the computing power behind the software models.  Other AI-related stocks have also rallied sharply on AI optimism.  BigBear.ai (BBAI), which uses AI to help customers analyze data, has seen its share price surge fivefold in January.  Also, Buzzfeed (BZFD) jumped more than 300% over two days last week after its CEO pledged to make AI-inspired content part of its “core business.” 

Jonestrading said the AI trend “is still in its early stages.  For all the names and tickers moving now, there will probably be three times as many in a month.”  Also, until the AI bubble bursts, it wouldn’t be surprising to see companies adding AI to their names or a jump in secondary stock offerings as executives seek to capitalize on the AI euphoria. 

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