Investing in AI: Opportunities and Risks for Investors
The potential of Artificial Intelligence (AI) has taken a leap forward with Microsoft-backed OpenAI’s release of ChatGPT bot. This has resulted in an increase in the shares of Nvidia, which makes computer chips that train AI systems, almost doubling since ChatGPT’s launch. However, the question for investors now is whether to jump on the AI train now or exercise caution. This article discusses the opportunities and risks for investors in AI.
Opportunities for Investors
Businesses are trying to use generative AI to speed up video editing, recruitment, and even legal work. Consultancy PwC sees AI-related productivity savings and investments generating $15.7 trillion worth of global economic output by 2030, almost equivalent to the gross domestic product of China. This has resulted in experienced tech investors hunting for undervalued opportunities in an over-valued space. Investors are chasing exposure to generative AI, the technology run by ChatGPT that learns from analyzing vast datasets to generate text, images, and computer code.
Instead of backing hot start-ups or rushing into highly valued AI-themed businesses that might fail, seasoned investors are taking a lateral view to back already proven technology companies that might benefit from the longer-term trend. Big tech groups like Microsoft and Alphabet are favored by investors because they have “strong balance sheets,” that make them “able to invest in many different technology advances,” including their recent focus on AI.
Risks for Investors
Dizzying valuations have made some investors wary of the technology hype cycle. This concept starts with a trigger, such as the launch of ChatGPT, followed by inflated expectations and then disillusionment. Even if a technology moves to mass adoption, many early stage innovators can fail along the way. This has resulted in some investors cautioning against AI-themed stocks.
Investors need to be cautious in picking AI-themed stocks. There will be an awful lot of losing lottery tickets. The dotcom crash of the early 2000s is still fresh in investors’ minds. The hype around AI is visible, but there are ways to get exposure to the theme without picking something that is highly valued.
Investors need to be wary of the risks of investing in AI. For example, AI systems require huge volumes of data to analyze and learn from, but just 1% of global data is currently being captured, stored, and used, according to Bank of America. This has resulted in some investors hunting out companies that provide the “picks and shovels,” necessary for enabling new AI technology.
Investing in AI is an opportunity for investors to generate substantial returns. However, investors need to exercise caution when investing in AI-themed stocks. Instead of backing hot start-ups or rushing into highly valued AI-themed businesses that might fail, seasoned investors are taking a lateral view to back already proven technology companies that might benefit from the longer-term trend. Investors need to be wary of the risks of investing in AI and pick the right stocks to invest in.
- “Critical thinking for avoiding hype”
- “Fact-checking strategies for online content”
- “Recognizing and avoiding clickbait”
- “Skepticism in the age of information overload”
- “Tips for staying grounded in a world of hype”
News Source : Naomi Rovnick
Source Link :how to avoid the hype/