Investing in AI: Navigating the Hype Free!

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The boom in Artificial Intelligence (AI) has presented a new challenge for investors. AI-themed stocks are highly valued, and investors are on the hunt for undervalued opportunities in this overvalued space. The question is how best to invest in the potential of AI without buying into a bubble.

## The AI Boom

The AI boom took a significant leap forward when Microsoft-backed OpenAI released its ChatGPT bot. Since then, shares in Nvidia, which makes computer chips that train AI systems, have almost doubled. The company’s stock market value is more than double that of Europe’s Nestle. Nvidia surged some 25% on Thursday alone after forecasting a sales jump.

## The Rise of AI Stocks

Shares in loss-making AI software company C3.AI have risen 149% this year, and Palantir Technologies, which has launched its own AI platform, is up 91% year-to-date. Investors are chasing exposure to generative AI, the technology run by ChatGPT that learns from analyzing vast datasets to generate text, images, and computer code. Businesses are trying to use generative AI to speed up video editing, recruitment, and even legal work.

## The Economic Impact of AI

Consultancy PwC sees AI-related productivity savings and investments generating $15.7 trillion worth of global economic output by 2030, almost equivalent to the gross domestic product of China.

## The Investor’s Dilemma

The question for investors is whether to jump on the AI train now, or exercise caution, especially given mounting concern amongst regulators about the technology’s potentially disruptive impact. “There are clearly going to be winners in all this,” said Niall O’Sullivan, chief investment officer of multi-asset for EMEA, at Neuberger Berman. “It’s just that that’s very hard to be true for the entire market.”

## A Word of Caution

Dizzying valuations have made some investors wary of the technology hype cycle. This concept, popularized by consultancy Gartner, starts with a trigger, such as the launch of ChatGPT, followed by inflated expectations and then disillusionment. Even if a technology moves to mass adoption, many early-stage innovators can fail along the way.

## The Long-Term View

Seasoned investors are taking a lateral view to back already proven technology companies that might benefit from the longer-term trend. They favor big tech groups like Microsoft and Alphabet because they have “strong balance sheets”, that make them “able to invest in many different technology advances”, including their recent focus on AI.

## The Final Word

Investors want to invest in AI now and they expect things to happen now. But we would never blindly buy into AI and we don’t do things at any price. The big benefits of AI are going to happen over the long term.