**Is A.I. the Start of the “4th Industrial Revolution” or Another Dot-Com Bubble?**
The Rise of ChatGPT and Bard
The rapid growth of OpenAI’s generative A.I. chatbot, ChatGPT, and Alphabet’s Bard has caught the attention of both Wall Street and Main Street. OpenAI’s ChatGPT attracted over 100 million users within two months of its release in November, leading Microsoft to invest an additional $10 billion in OpenAI. Alphabet quickly responded by launching its own generative A.I. chatbot, Bard. However, the market’s excitement over these developments was briefly dampened by a mistake during Bard’s rollout, leading to a significant sell-off that eroded $100 billion from Alphabet’s market cap in a single day. The propensity of generative A.I. systems like Bard and ChatGPT to make mistakes and deviate from their intended paths raises concerns.
The Potential of A.I. and its Consequences
The emergence of A.I. technology comes with both promises and risks. On the one hand, billionaires like Elon Musk believe that A.I. could lead to the destruction of civilization due to potential job loss and the spread of misinformation. On the other hand, Musk also argues that A.I. could enhance productivity and usher in an age of abundance. Senate Majority Leader Chuck Schumer acknowledges the transformative power of A.I., but he emphasizes the need for stronger regulations to navigate its uncertain future. The financial stakes are high, reflected by Nvidia’s exponential stock growth in 2023, positioning the company as one of the top players in the trillion-dollar market cap club. Microsoft and the Global X Robotics & Artificial Intelligence ETF have also seen substantial gains.
The Skepticism Surrounding A.I.’s Hype
Not everyone is convinced by the hype surrounding A.I. Technology. Robert Marks, an electrical and computer engineering professor at Baylor University, believes that the current excitement is merely a bubble that requires a more balanced perspective. David Trainer, the founder of investment research firm New Constructs, draws parallels between the A.I. hype and previous investment trends, such as the rise of cryptocurrencies, meme stocks, and the dot-com bubble. He warns investors to approach the A.I. era cautiously if they want to avoid disappointment caused by overvaluation and insufficient attention to earnings. A.I.’s hype has followed a typical curve seen after every major technological advancement in history.
Investors in the Midst of A.I. Hype
Navigating the A.I. hype can challenge even the most experienced investors. Wall Street is heavily involved in the trend, with Morgan Stanley praising A.I.’s potential to enhance productivity, and BlackRock CEO Larry Fink suggesting that it can improve margins and combat inflation. Wedbush tech analyst Dan Ives regards the rise of generative A.I. as the beginning of the 4th Industrial Revolution, projecting that tech stocks will reach new heights in 2023. However, David Trainer cautions that it is difficult to predict how long this trend will last and believes that some A.I. stocks have reached unjustified valuations. He warns that when fundamentals are disregarded, irrational behavior can persist for longer than expected.
Navigating the Risks and Rewards
Investors must carefully consider the risks and rewards of the A.I. hype. While participating in the frenzy may seem tempting, it is important to maintain a critical eye on company fundamentals in order to ensure long-term success. The exponential rise of A.I.-linked stocks like Nvidia may be indicative of a broader trend, but investors should be cautious not to fall victim to FOMO (fear of missing out) and instead make informed decisions based on a company’s earnings and valuations. Striking the right balance between capitalizing on potential opportunities and managing risk is crucial to navigate the A.I. era.
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