Paul Graham thinks stock market investors are missing out on the AI ​​boom

• In a recent tweet, Graham said he believes all good AI companies to invest in are still private.
• That leaves little choice for public market investors who want to invest in AI, he said.
• But some argue that people who want to invest in AI can buy shares in companies like Nvidia and Microsoft.

Paul Graham says public market investors are missing out on a potential avenue to embark on the AI ​​boom because all the good companies to invest in are still private companies.

The well-known venture capitalist, entrepreneur, and co-founder of startup accelerator Y Combinator warns that anyone investing in the public markets (including those with access to Robinhood or Charles Schwab stock trading accounts) should invest in AI if they want to. , tweeted that he had little choice. company.

Graham later argued that AI was “the first big technology wave” since start-ups began going public, resulting in “unique problems.”

Since many AI startups are still relatively new, most were founded within the last five years or so, they rely primarily on private funding from investors such as venture capitalists and private equity firms to operate their businesses. to support long-term growth. Everyday retail investors probably don’t have the cash or access to invest directly in these companies.

And the common path to the public equity market can take years, and most AI companies haven’t achieved the scale and revenue needed to transition to that market. It’s also not the best time for companies to go public. The current volatility in his IPO market has made listings less attractive to even the most successful privately held companies, such as payment giant Stripe and grocery delivery startup Instacart.

This is a unique problem that Graham mentions, and he believes there are only two ways to meet public demand for AI companies. Either a publicly traded company buys an AI startup and “claims” itself as his AI company, or the AI ​​startup becomes a big hit. The public market is much earlier than expected.

Neither scenario is likely to produce good investments, according to Graham, and companies that choose the first route are pandering to market opinion, so companies that settle for the second route are probably more likely than they are. You will be able to find a private investor who will provide the kind of capital you are looking for. for.

But some disagree with Graham’s assessment, saying that public-market investors can buy companies like Nvidia, Microsoft, Alphabet, and Meta to get the kind of AI investment exposure they seek. claims.

AI stocks have surged in the public markets this year, but institutional investors are leading the rally, according to new research from Vanda Research. But retail investors “remain on the sidelines,” the research firm said in a note.

Nvidia, a publicly traded company originally known for making computer chips that enhanced things like graphics in computer games, now makes chips that power generative AI that allows users to create text and images with simple prompts. also manufactures. This is the technology behind applications such as ChatGPT and Google’s Bard. Wall Street took notice recently, helping to temporarily push the company’s value to $1 trillion, and other big tech giants like Amazon, Apple, Microsoft and Alphabet have joined its club.

And Microsoft plans to invest $10 billion in AI startup OpenAI, the makers of ChatGPT and DALL-E, and integrate its technology into many tools. Meanwhile, Google has its own AI chatbot called Bard. And these big tech companies have their own venture arms that invest in AI startups. For example, Google recently led a $100 million round in generative AI startup Runway, he reports Insider.

But private investment in AI startup innovation may have the biggest potential for huge returns, as Graham hints. Since OpenAI released his ChatGPT to the public last fall, investors have taken a keen interest in his AI, especially generative AI.

According to PitchBook data, generative AI startups raised about $1.7 billion in VC funding in the first quarter of this year alone, including another $10.7 billion worth of announced but unsuccessful deals. Not included.

Three years ago, in the same quarter, the company raised just $250 million.