AI-Fueled Stock Rally Ignites Debate on Who’s Winning and Losing

Stock rallies tied to the latest market craze may be a good investment or fears of missing out. That debate, which hits on the theme of several boom-to-bust cycles in some corners of the market, has been reignited after artificial intelligence-linked companies saw their shares pop as tech giants like Microsoft Corp. announced big investments in the industry.

The frenzy conjures memories of the crypto and cannabis crazes and even the dot-com bubble in the late 1990s, where investors piled into stocks and asked questions later. After Friday’s close, a handful of firms added some $5.2 billion in market value despite announcements that look more like half-baked plans.

“It is total buyer-beware unless you know what you’re doing and have proper risk management,” said Matthew Tuttle, CEO of Tuttle Capital Management. “You can’t just go in and buy any company that says they’re in AI.”

Generative AI, a label used to describe artificial intelligence technology that can create things like art or text, and ChatGPT — the popular tool owned by OpenAI which Microsoft just invested $10 billion in — have been mentioned in more than 165 earnings calls and press releases this year so far, more than the number of mentions in all of 2022.

The citations come with good reason. The market for generative AI could be “exceedingly large,” easily “in excess of a trillion dollars,” according to UBS analysts led by Lloyd Walmsley. The potential windfall is enticing investors and underscores the fine line between trend-chasing companies hoping to make a quick return and those with goals to utilize a technological advancement to drive growth and make billions.

BuzzFeed Inc., a struggling media company, soared 307% in a two-day frenzy in January on veiled plans to utilize AI. Similarly, after touting its AI plans in a statement software company C3.ai Inc. shares more than doubled this year with $48 million in buying from retail traders, according to data from Vanda Research. Meanwhile, semiconductor maker Nvidia Corp., which has been touted by Wall Street analysts as a beneficiary of greater investment in AI, posted its best month in almost six years, its shares rallied 34% in January.

But investors should proceed with caution as some companies are already starting to falter. BuzzFeed shares have wiped out more than 40% of their value from an intraday high for the year last week and video game software maker Versus Systems Inc. is trading back under $1 a share after selling 2.5 million shares to capitalize on its rally.

For now, despite signs of speculative froth, AI has yet to reach the heights of the blockchain madness when companies like Long Island Iced Tea Corp. rebranded itself Long Blockchain Corp. to avoid delisting.

Tech heavyweights looking to use AI to grow revenue are likely the best places for investors to park their cash, according to Tuttle.

There’s certainly lots of opportunities out there. Meta Platforms Inc. Chief Executive Officer Mark Zuckerberg, for example, recently said one of his main goals is to be a leader in generative AI. Alphabet CEO Sundar Pichai already sees Google as a leader in developing AI, noting during the company’s earnings call this week that he spoke about Google being an AI-first company more than six years ago. While Snap Inc. CEO Evan Spiegel sees generative AI as a “huge opportunity that they’re “already investing a ton” in.

The return of market liquidity as speculative corners of the investing world soar are another signal that investors should exercise caution, Tuttle says. Many of the riskiest corners of the stock market have rallied to start the year. Cathie Wood’s ARK Innovation ETF is up 37% and a basket of so-called meme stocks — a group completely detached from fundamentals — is 22% higher, while the world’s largest cryptocurrency based on market value Bitcoin is up roughly 40%.

“Financial conditions are loose and it’s the perfect environment for anything new and AI is the new kid on the block right now,” he said. “If you know what you’re doing, great, have at it. If you’re a FOMO person, stay away until this gets a little more settled.”