AI is the latest Wall Street craze. Is it also the next bubble?
New York (CNN) Artificial intelligence is the newest tech flavor of the month.
Industry giants Google, Microsoft and China’s Baidu have all had big AI announcements in the past few days as ChatGPT’s bot-mania takes the corporate world by storm.
All of this AI news has helped boost shares of baidu (BIDU), Microsoft (MSFT) and Google owner alphabet (Google) this year. However, Alphabet plummeted on Wednesday after a rocky demo from Bard, its rival to ChatGPT.
Traders have also bid on the shares of much smaller, unprofitable companies trying to make their mark in the AI arms race.
Take a look at C3.ai. Shares of the artificial intelligence software company have more than doubled this year to about $26. Securing the super-relevant and easy-to-remember ticker symbol “AI” likely helps attract investors. And so does the fact that the company is run by tech veteran Tom Siebel, who sold his eponymous software company to Siebel Systems oracle (ORCL) in 2006.
SoundHound AI, which makes speech and other audio recognition software, also more than doubled its stock this year.
Keyvan Mohajer, CEO of SoundHound AI, told analysts on a conference call in November, “Our goal is to make conversational AI even better than humans at understanding natural language and also as human-like as possible in the way they use it.” reacts and interacts.”
And then there’s BigBear.ai, which provides AI solutions for US intelligence agencies and other parts of the federal government. The analytics firm’s shares are up nearly 700% so far in 2023.
The AI stock mania is reminiscent of other speculative madness in the tech world. Remember when crypto-related stocks soared in 2021 and then crashed in 2022? And let’s not forget the epic rise of many dot-com companies in the late 1990s and their subsequent crash in 2000.
So investors need to avoid getting caught up in the hype. Even Mandy Long, who recently took over as CEO of BigBear.ai, admitted this.
“We will see some degree of normalization. Will people be talking about ChatGPT every day for the rest of our lives? Probably not,” she said, adding that the company’s goal is to create sustainable growth and show investors that it’s not just about being part of a lively trend.
Investors could be ahead of themselves
Of course, AI is not a passing fad. The fact that many of the world’s largest tech companies are embracing artificial intelligence is testament to this. (We see you, Microsoft, Meta and IBM.)
Long pointed out that BigBear.ai derives about 90% of its revenue from the U.S. government, a relatively stable customer that will continue to need artificial intelligence technologies over the long term.
“We’re a modern data mining company,” she said, noting that the company is both a partner and competitor of big data leader Palantir.
And just like the dot-com bubble paved the way for companies like Amazon (AMZN), ebay (EBAY) and Priceline owners posting balances (BKNG) To emerge from the rubble as stronger, larger, and more diversified companies, even multiple AI novices could survive today’s troubles and thrive over the long term.
It may just take time for the industry to mature. C3.ai, BigBear.ai and SoundHound are not currently profitable and none of them are expected to make money this year or 2024 according to analysts covering them.
All three stocks were also crushed in the 2022 bear market and are all still well below their 52-week highs. SoundHound and BigBear.ai both recently went public through mergers with so-called blank check firms, or special-purpose acquisition companies. SPAC stocks have been hit particularly hard over the past year.
BigBear.ai hopes to have turned things around after raising $25 million through a private placement of shares earlier this year. Long said the company and investors are distracted by its weak cash position and need to raise capital to keep growth on track.
And SoundHound AI’s Mohajer remained bullish, telling analysts in November that “even in a softening macro environment, demand for AI field solutions continues to grow.”
However, times are still tough for many smaller, up-and-coming tech companies as the Federal Reserve braces for more rate hikes to combat inflation. Siebel made the admission on C3.ai’s recent quarterly conference call with analysts.
“We think tech companies and tech stocks will continue to face headwinds as long as the Fed keeps its foot on the brakes,” Siebel said in December. “The collateral damage will be greater than people think, in my opinion.”
But he’s still upbeat about the year ahead, saying the company will be “bigger, stronger, cash-positive, profitable, a clear market leader and well-positioned to benefit from the inevitable rise in stock markets that will follow.” .