Is the AI Mania About to End?

Analysts Notebook wrote a column · Aug 8, 2023 16:26

$UBS Group (UBS.US)$ released a report earlier this year, praising OpenAI's ChatGPT chatbot for its success in acquiring 100 million website visits within three months of being launched publicly. This surpassed the milestones achieved by social media apps such as TikTok and Instagram, but the report was based on website visits rather than official monthly active user numbers from OpenAI itself.

The report sparked an AI fervor, with tech companies competing to launch their own chatbots and venture capitalists investing billions into AI startups. While AI is touted as a key growth area, it is still uncertain if and when the technology will become profitable due to high costs associated with building and running generative AI. Some recent reports have also suggested that ChatGPT usage is decreasing.

In the mid-2010s, scientific discoveries in AI led to numerous start-ups in the industry, many of which were acquired by large tech companies. In the latest wave of AI, chatbots such as ChatGPT and Google's Bard are powered by vast amounts of data from the open internet, requiring significant energy and computing resources. $NVIDIA (NVDA.US)$ has benefited significantly from this trend, becoming the world's sixth-most valuable company with a valuation of $1.1 trillion.

However, chatbots also create and disseminate false information, while AI firms have been accused of using copyrighted material without permission or payment. Unlike previous consumer-focused technologies, such as social media and e-commerce, AI is costly, making it difficult for companies to succeed unless they have developed a viable business model.

Source: Bloomberg

$Morgan Stanley (MS.US)$ strategists believe that the bubble in artificial intelligence stocks is close to reaching its peak as Nvidia's stock price has surged by over 200% this year.

The strategist noted that bubbles tend to rally a median of 154% in the three years before they reach the peak. Although Nvidia has been at the forefront of AI, broader benchmarks such as the MSCI USA IMI Robotics & AI Select Net USD Index have risen more modestly, about 47%.

However, Morgan Stanley indicates that individual stocks in the sector do not have uniform characteristics, and conclusions on the upswing and drawdown of bubbles can only be made at an index level.

We're a few steps into a marathon in my opinion," Amazon CEO Andy Jassy said. "I think AI is going to be transformative, and I think it's going to transform virtually every customer experience that we know. But I think it's really early. I think most companies are still figuring out how they want to approach it."

Apple CEO Tim Cook said in a May conference call that "there are a number of issues that need to be sorted" when it comes to the tech.

Our company had actually been working on generative AI for years and AI was integral to virtually every product that we build," Cook elaborated on a Thursday call to discuss the company's earnings with analysts.

Source: Bloomberg, The Washington Post

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Financewithad : AI hype is nothing but over. Also it would be wrong to call this hype AI is here to stay the next decade will see its explosive rise. Whether it will do more good than harm for humans that time will tell .

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