Savvy tech investors are looking for undervalued opportunities in overvalued areas.
The question is how best to invest in the potential of artificial intelligence (AI). Artificial intelligence (AI) took a leap forward without falling into a bubble, with his Microsoft-backed OpenAI releasing his ChatGPT bot in November.
Shares of Nvidia, which makes computer chips that train AI systems, have nearly doubled since ChatGPT’s launch. The company’s stock market value is about $940 billion, more than double that of Europe’s Nestlé. Nvidia predicted a surge in sales, jumping about 25% on Thursday alone.
Shares of loss-making AI software firm C3.AI are up 149% this year, while Palantir Technologies (NYSE:PLTR), which launched its own AI platform, is up 91% year-to-date. .
Investors are chasing exposure to generative AI, a technology operated by ChatGPT that generates text, images, and computer code by learning from analyzing massive datasets. Companies are using generative AI to speed up video editing, recruiting, and even legal work.
Consulting firm PwC estimates that AI-related productivity savings and investments will generate $15.7 trillion worth of global economic output by 2030, roughly equal to China’s gross domestic product.
The question for investors is whether to jump on the AI train now or be cautious, especially given growing concerns among regulators about the technology’s potentially disruptive impact. should be.
“There are clear winners in all of this,” said Niall O’Sullivan, chief investment officer of EMEA multi-asset at Neuberger Berman. “But it is very difficult to apply that to the market as a whole.”
still early
Rather than backing hot startups or jumping into high-value AI-themed undertakings that are likely to fail, savvy investors already have the potential to benefit from long-term trends. We take a lateral view to help proven technology companies.
“It’s going to be as transformative as the internet, mobile internet and mainframe computers,” said Allison Porter, a tech fund manager at Janus Henderson, who holds a position at Nvidia alongside Microsoft (NASDAQ:MSFT). . their largest holdings.
However, Porter also warns that “we are still in the early stages of AI use cases.”
She backs big tech groups like Microsoft and Alphabet (NASDAQ:GOOGL). That’s because they have a “strong balance sheet” that allows them to “invest in a variety of technological advances,” including a recent focus on AI.
Beware of the hype
Dizzying valuations have made some investors wary of a tech hype cycle. Popularized by consulting firm Gartner (NYSE:IT), the concept started with things like the launch of ChatGPT, followed by high hopes and then disillusionment. Even as technology moves toward mass adoption, many early-stage innovators are likely to fail along the way.
“The question is where we are on the AI curve where the hype is so visible,” said Mark Hawtin, investment director at GAM Investments. “There are ways to get in touch with (AI) themes without choosing highly rated ones.”
pick, shovel
Janus’ Porter recommended backing proven companies that could be “big beneficiaries in terms of providing infrastructure” for the currently uncertain future of generative AI.
GAM’s Hawtin said it has also found companies that provide the “picks and shovels” needed to enable new AI technologies.
For example, AI systems require vast amounts of data to analyze and learn, but only 1% of the world’s data is currently captured, stored and used, according to Bank of America (NYSE:BAC).
Hawtin’s fund holds Seagate Technology, which makes hard drives and data storage products, and Marvell (NASDAQ:MRVL) Technology, a chip maker, for this reason, he said.
John Guinness, technology portfolio manager at Fidelity International, said management consultancy Accenture (NYSE:ACN) was added to his portfolio because he “strongly believes in bringing in the experts” when companies consider how to use AI. said to be included.
Commitment to Big Tech
Trevor Greetham, head of multi-asset at Royal London Investment Management, said he’s “overweight” big tech stocks, partly because AI underpins valuations. A warning bell sounded for the stocks that did.
“Lottery losses are going to be huge,” he said, recalling the dot-com crash of the early 2000s.
Fidelity’s Guinness also sticks to big tech, saying his fund holds Amazon (NASDAQ:AMZN), part of an effort to lower the cost of AI for companies. For example, his Bedrock service on Amazon allows companies to customize generative AI models rather than developing them themselves.
Janus’ Porter said, “The big benefits of AI are going to happen over the long term.”
“Investors want to invest in AI now and expect something to happen now,” she added. “But we will never blindly support AI, and we are not going to do things at any cost.”
Source: Reuters
