Artificial intelligence is a hot topic among markets and technology users around the world, and for good reason. The newly released AI models were very impressive when they first debuted, even if they weren’t completely accurate. Whether in chat products or custom images, AI seems to be everywhere.
As an investor, this creates an opportunity to find new growth stocks. But there are reasons to be cautious about new AI investments today.
Green Flag: Hiring not planned
Companies with even a little exposure to artificial intelligence are now on the radar of investors. And it makes sense. Unlike new technological paradigms such as virtual reality, cryptocurrencies, and the Metaverse, AI adoption has been relatively quiet. In just two months, OpenAI’s ChatGPT has recorded his 100 million active users, microsoft recently announced an AI-powered Bing search engine.
From small apps to additions to major technology products, new companies are forming on the back of this success. And everyone seems to be pouring both money and attention into AI.
This growth is hard to overlook, and investors may want to enjoy companies exposed to AI. But we need to think more carefully about how companies are using this technology to make money.
Red Light: No Clear Business Model…yet
It’s easy to say that one company dominates artificial intelligence. NVIDIAMicrosoft, Teslaand C3.ai Only a minority of investors consider themselves the clear leaders. But so far, many AI use cases are just toys. For example, I doubt that Bing’s AI-powered search will be overthrown. alphabetGiven that Google makes mistakes soon.
There is no clear business model for AI yet, unless it helps existing businesses. ChatGPT is not a fully fleshed out business. Midjourney is interesting, but still limited within Discord, and many AI apps are already booming and busting. Even on the chip side, it’s not clear whether the AI will run in the cloud or on the device. apple I am working on implementing it on a custom made chip.
It takes time for technology to solidify business models, especially in new technology paradigms. In 1999, Cisco, AOL, Dell Computer, Nokia, Ericsson, and Yahoo! were considered the clear winners of the Internet era. That basket of stocks would have significantly underperformed the market over the next 20 years.
AI may be the same. Early leaders may not be able to retain leads if they do not find ways to make money. I view this industry with a healthy level of skepticism.
Don’t bet your farm on AI
It’s clear that artificial intelligence has great potential in many areas, but investors need to judge their money. Companies that talk about AI are not necessarily the winners in the long run. And I’m skeptical of anyone using AI as a buzzword until I see how companies are profiting from this technology.
This is arguably one of the biggest technological opportunities since the iPhone, so investors should pay attention. But I would rather be late buying an industry leader than betting on the wrong company in AI. As happened with the internet and smartphones, the future winners may not be the obvious AI companies we hear about today.
Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Travis Hoium holds positions at Alphabet and Apple with the following options: The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, NVIDIA and Tesla. The Motley Fool recommends C3.ai and recommends the following options: Apple’s March 2023 $120 long call and Apple’s March 2023 $130 short call. The Motley Fool’s U.S. headquarters has a disclosure policy.