I hesitate to use the word “bubble” because it has so many negative connotations and a “get off my lawn” quality to it when used in the context of a new technology. However, it really does seem to be the best word to describe what is going on now in the AI space. Just as anything that included the words “dot com” in its name soared in price in 1999 and, more recently, anything Bitcoin related jumped to crazy highs a couple of years ago, so any stock whose name or description hints at involvement in AI is posting exponential gains right now. AI is a buzzword causing a bubble and like all bubbles, the air will come out at some point, whether by way of a slow leak or a spectacular pop.
In both of the previous cases mentioned above, once the dust settled, there were clear winners and losers in the space. Both the internet and Bitcoin did turn out to be things that stuck around and sprouted industries where vast amounts of money were made by some, but the same things could not be said for every company who attached themselves to the concept in the early days. Based on that history, even those in AI who do survive probably won’t justify their current valuations for a long time to come. Take a look at a twenty-year chart for Amazon (AMZN), for example, and you will see around fifteen years when the stock effectively languished following the bursting of the dot com bubble, with all the big gains coming over the last five years.
The problem to some extent is an assumption that if a technology was going to succeed, every company involved in its early days will do well, but there is also always a degree of overestimation of how quickly and how fully a technology will meet its potential. If e-commerce had completely taken over consumer spending within ten years or Bitcoin had completely replaced fiat currency in a similar timespan, maybe even the inefficient companies and those with only a marginal attachment to the technology would still have prospered. But that isn’t what happened, and a similar state of play for AI will come into focus.
Before we go any further, let me declare my bias when it comes to AI. While I do a lot of research and have a lot of trading and market experience, at heart, I am a writer. The end product of the work I do is what you are reading now, what I hope is (at least somewhat) entertaining and relatively easy to understand presentation of the conclusions arrived at. AI is considered to be a direct competitor in that field, and many predict it will effectively replace the jobs of writers before too long. I would disagree.
A computer program can “learn” in the sense that it can acquire knowledge and it can show “intelligence” in that it can apply that knowledge in certain ways. What it cannot do, though, is to learn in the sense of learn from its mistakes, at least unless a programmer alters the software to account for that. A program that follows a logical, pre-set path to a conclusion, just like a person that does the same, will always arrive at the same conclusion from a given set of facts and input.
Even allowing for that, though, I genuinely believe that there is a limitation to AI that will stop it from replacing writers such as me, and that is its inability to show intelligence in the sense of original thought. My market experience suggests to me that at some point, that will severely limit the use of AI for the written word. Markets can only exist if there is a buyer and a seller for each trade, meaning that, faced with the same data and circumstances, two analyses can arrive at polar opposite conclusions about their implications.
I know there have been significant advances in the AI field over the last couple of years, but it seems to me that multiple computer programs, when faced with the same data input, will always arrive at one conclusion. They may replicate different styles in how they present that conclusion, thus mimicking writers, but 1+1 will always equal 2, so the premise of those articles will always be basically the same.
So, when investors look at something like C3 AI (AI), where the stock has tripled over the last month or so, take care. I suspect that at least some of those gains are down to the fact that the ticker symbol makes that stock an obvious choice for those influenced by the massive coverage of the wonders of Chat GPT. C3 AI or one of the other stocks with “AI” in their name that are flying, may turn out to be the next Amazon but, for now, they are companies that have never made any money and probably won’t for years to come. Call me old-fashioned but at this point, that says “trading opportunity” to me, not “investment opportunity.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
