What do financial experts say about investing in AI stocks?

On March 14, 2023, the Artificial Intelligence Laboratory OpenAI released its latest large-scale language model, LLM, GPT-4.

Despite being released less than four months after its predecessor, GPT-3.5, the new model is capable of far greater feats of intelligence. OpenAI claims his GPT-4 score in the top 10% on the Unified Bar Exam and in the top 12% on the Law School Entrance Examination. For comparison, GPT-3.5 scored in the bottom 10% and bottom 40%, respectively.

The potential economic impact of this kind of AI advancement is difficult to quantify. In a 2022 report, his PwC, an accounting and consulting firm also known as PricewaterhouseCoopers, estimates that AI could contribute his $15.7 trillion to the global economy by 2030.

Given these numbers, it’s no wonder AI stocks have started to catch investors’ attention.

Haydar Haba is the founder of Andra Capital, a venture capital firm that invests in AI companies. In his email interview, he said there are several publicly traded companies with considerable interest in AI and poised to benefit from the industry’s growth.

AI stocks tend to fall into one of two categories: blue chip Technology companies investing in or partnering with AI developers, and small, experimental companies fully dedicated to AI development.

A share of small AI developers may seem like the most “direct” investment in AI. But FBB Capital Partners’ AI research analyst Michael Brenner says FBB Capital Partners isn’t necessarily the best AI investment.

“Building language models at scale requires huge amounts of data and huge amounts of capital,” says Brenner.

Brenner said small businesses may develop innovative new models on their own, but ultimately running those models on a commercial scale will require large firms with more infrastructure and It says we need to work together.

“So far, we’re sticking with more mega-cap tech companies,” said Brenner, referring to FBB Capital Partners’ AI portfolio.

Below is a list of AI stocks that Brenner or Hubba highlighted as potentially interesting to investors.

• NVIDIA (NVDA). “Today, NVIDIA is the leader in AI and machine learning hardware, with powerful [graphics processing units] It’s perfect for training and inference workloads,” said Haba.

• Taiwan Semiconductor Manufacturing (TSM). “All chips that power AI have to be made in very high-end semiconductor manufacturing facilities, and Taiwan Semiconductor owns them,” says Brenner.

• Meta Platform (META)“Meta has invested heavily in AI, especially LLM,” said Haba.

• Amazon.com (AMZN). “Cloud companies, which already have many of the chips and infrastructure people need to run these large-scale AI models, will definitely benefit from the increased demand for AI computing,” Brenner said. says Mr.

• Microsoft (MSFT)“Microsoft has invested heavily in AI research and development, and its $10 billion investment in OpenAI is very notable,” said Haba.

• Alphabet (GOOG)“Google also invests heavily in AI research, recently announcing a strategic investment in OpenAI’s underlying model competitor, Anthropic,” said Haba.

• Snowflake (SNOW)Haba named Snowflake as another cloud computing company that could benefit from the increased demand for AI computing infrastructure, along with Microsoft, Amazon and Alphabet.

Investors can also gain exposure to AI stocks, according to Haba Listed investment trust Invest in a basket of companies involved in AI development and implementation.

There are several AI stock indices tracked by ETFs, including the Indxx Global Robotics & Artificial Intelligence Thematic Index and the Nasdaq CTA Artificial Intelligence & Robotics Index.

You can also search for “artificial intelligence”, “machine learning”, or “AI” to find AI ETFs in the ETF Screener, but be sure to thoroughly research any ETFs you find this way.

Some ETFs with “AI” in their name invest in AI-related companies. Others, however, are decentralized ETFs that use AI-powered trading and are not necessarily invested in AI stocks.

In the past few months, the stock prices of some small companies have surged after being mentioned in some AI-related news. BuzzFeed (BZFD), for example, saw its stock price surge by more than 85% the day after a news report said he had partnered with OpenAI to develop an AI-powered article writer.

Haba said there are currently signs that investors may be overenthusiastic about AI’s potential.

“AI has been used as a buzzword to drive stock premiums, but companies have not always demonstrated the use of cutting-edge technology,” he said.

“In the private market, hundreds of millions of dollars are flowing into ‘AI’ companies that don’t have product-market fit. Investors justify such investments based on their growth potential, but it remains unclear whether that potential can or will be monetized. ”

Brenner also acknowledges that some AI-related individual companies have seen their valuations skyrocket without significant changes in business fundamentals.

But Brenner doesn’t think the current surge in interest in AI is a bubble. technology stocks It’s still below its 2021 high.

“At a macro level, I wouldn’t say we’re in a bubble because we’re not at an all-time high,” says Brenner.

Investors should consider carefully before purchasing individual stocks or targeted ETFs. Targeted investments can be riskier than broad investments such as the S&P 500 index fund. average annual returnabout 10% if you don’t take inflation into account.

One guideline that helps limit that extra risk is to dedicate no more than 10% of your total portfolio to individual stocks.

But Brenner says AI stocks are worth considering if you can afford to buy individual stocks.

“I think retail investors should consider how machine learning will affect their stock holdings,” he says.

“For retail investors looking at individual stocks in their 401(k), it may make sense to invest in AI companies as part of a diversified portfolio if they can weather the volatility of individual stocks. “There is a lot of potential,” says Brenner.