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Artificial Intelligence: Key Tech Sector Trend. How To Build A Portfolio

Over the past two months, Wall Street has been obsessed with ChatGPT, the now super popular chatbot from startup OpenAI. ChatGPT launched on November 30 as a free service, and the world has been stunned by its ability to answer questions and create original content, generating everything from letters and resumes to computer code and Shakespeare-style sonnets. In January, ChatGPT reached more than 100 million users, hitting that milestone even faster than TikTok.

The hype around AI comes at a significant time for tech companies whose stocks dropped sharply in 2022. Growth has slowed, the IPO market has all but disappeared, and regulatory scrutiny is tightening. The tech sector could use a boost, and perhaps AI is about to do its job. Barron’s singles out ten companies (including small, speculative ones). Let’s take a closer look.

Speculative rates
C3.ai #AI, a provider of AI-based software tools for enterprise-grade applications. #AI is up 126% YTD, boosted by the company’s plans to offer a search interface powered by OpenAI and Google technologies.
BuzzFeed #BZFD, a digital media company providing global audiences with breaking news, original reporting, entertainment, and video through social media. #BZFD is up 198% this year on the news that the company plans to use ChatGPT to create content for its website.
SoundHound AI #SOUN, which announced a voice-enabled generative AI application for the automotive and other end markets last week. #SOUN has more than tripled since the launch of ChatGPT, +120% YTD.
BigBear.ai Holdings #BBAI, which develops AI-based analytics tools for U.S. defense and intelligence agencies. It grew +520% during the same period. Both SoundHound and BigBear capitalized on the new interest in their stocks by selling more of them.

1. ARM vendors

IBM #IBM lists AI as one of its top two priorities, along with hybrid cloud computing. IBM, aka Big Blue, stands away from launching a search engine or creating chat apps but aims to make AI and machine learning ubiquitous elements of enterprise computing. IBM’s Vice President, who leads AI research, says the company is developing base models, an AI-based approach to building industry applications. In essence, IBM uses the technologies for creating large language models found in chatbots in other areas, such as writing code, analyzing spatial data, discovering molecules, and automating businesses.

Nvidia #NVDA, one of the best companies in the AI market. It’s estimated that 75% of AI workloads will be on servers using Nvidia’s GPUs. Also, the complexity of AI will increase demand for cloud computing hardware and chips.

Advanced Micro Devices #AMD, which will benefit from the AI trend. Here’s a quote, “AI has been around for quite some time. But we’re at an inflection point, touching all of our technologies, from chips for consumer devices up to the largest chips we build for data centers. You need AI capability in every one of those devices.”

Adobe #ADBE, which dominates the creative tools market (InDesign, Photoshop, and Illustrator). The trend towards generative AI, which includes both images and text, is expanding its market as more people become content creators. We are in a golden age of content creation, and generative AI will only speed up this process. By the way, #META has promised to roll out its generative AI tools later this year.

2. Top-level

Microsoft #MSFT, which recently launched a new version of its Bing search engine with built-in support for OpenAI’s ChatGPT. The fallout from this has shaken up the market, mostly Google’s parent company Alphabet #GOOGL, which may lose the race in online search for the first time in decades. #MSFT CEO, “AI will fundamentally change every software category, starting with the largest category of all—search.”

The day before Microsoft’s announcement, Google #GOOGL introduced its conversational AI service. Moreover, the company intends to add generative AI features to its core search engine. Last week, Alphabet hosted a modest search event that featured AI-related updates for maps, image search, and language translation. But the market remained unimpressed.

Let’s sum it up

Analysts debate the once-impossible idea that an action-packed new Bing, launched in 2009, could change the balance of power in the Internet search market. According to Statcounter, Google currently controls 93% of the search market, while Bing boasts only 3% (other sources say about 9%). For that reason, Google almost completely dominates search-related advertising as well.

So far, investors are less worried about a couple of antitrust suits against Google than they are about losing some of the search power to the AI-based version of Bing.

Long story short: Wall Street has concluded that Google finally has a real competitor in the online search market. Unlike the typical picture of technological upheavals, it’s not a threat from a brash startup. Google is under attack from a brave version of the world’s largest software company, Microsoft.

By and large, we can say Microsoft’s aggressive steps in generative AI and how fast it develops its product pose a real risk to Google’s market position. The search market has officially entered a new phase.

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