Buy The Hype? AI Frenzy Has Stocks Surging And Plunging—But Morgan Stanley Calls The Technology A ‘Serious Contender’

Topline

A slew of companies—led by tech giants Microsoft and Alphabet—have announced high-profile forays into artificial intelligence amid growing hype around AI-equipped chatbot ChatGPT, and though some stocks have already started to surrender some of their AI-fueled gains, analysts seem to be bullish overall that the technology will create real market value in the near future.

Key Facts

Generative AI, meaning algorithms used to create what appears to be human-generated content, is “showing all the usual hallmarks of hype,” Morgan Stanley analysts led by Edward Stanley wrote in a Thursday note to clients, pointing to the “social media echo chambers, exponential venture funding and a polarized media” surrounding ChatGPT’s creator, OpenAI.

Over the years, investing fads ranging from meme stocks to cannabis have eventually cooled, the analysts note, before positing: “Yet, something suggests the AI hype is worth considering seriously . . . product-market fit.”

The analysts point to ChatGPT’s rapid growth since launching in November—making it “the fastest platform to a million users asd fastest to 100 million site views”—as evidence generative AI could become a “serious contender” to create “real market impact.”

“The AI war is heating up,” Bank of America analysts told clients on Monday, referencing Alphabet’s announcement that it would release a ChatGPT rival named Bard to the public “in the coming weeks.”

Though some have been skeptical of the Google parent’s AI announcement, Bank of America notes the tech giant “is well prepared with years of investment in the technology,” and has a “large distribution advantage” with iOS and Android.

Analysts have also been bullish on Microsoft’s AI push, including a roughly $10 billion investment in OpenAI that’ll help infuse ChatGPT’s technology with Microsoft’s Bing search engine—a move Wedbush analyst Dan Ives said should “challenge the Web search market by grabbing market share.”

Contra

The hype has also garnered many skeptics. Shares of Alphabet fell nearly 8% on Thursday after reports that Bard’s promotional material contained inaccurate information, and Baidu stock similarly slipped after a warning from the Shanghai Stock Exchange. “Please pay attention . . . avoid capital risks, hype, make rational decisions, and invest prudently,” the exchange said in a filing about triple-digit percentage gains in shares of Shanghai-listed AI firms.

Tangent

“Chatbots may be giving consumers their first tangible experience with AI, but they’re a sideshow compared to how this technology will be utilized and monetized by companies,” says Vital Knowledge analyst Adam Crisafulli, pointing out that Facebook parent Meta has used AI to overcome iOS privacy restrictions and counter TikTok, while Oracle’s Autonomous Database has helped streamline routine database maintenance without human intervention.

Key Background

Artificial intelligence technology has drawn massive fanfare from investors this year amid the growing popularity of ChatGPT, which launched in November and has helped OpenAI nab a staggering $29 billion valuation. Alphabet’s Bard announcement came one day before Microsoft held a press conference to tout an investment in OpenAI that has helped shares of the Silicon Valley staple surge nearly 20% over the past month. “This is just the first step on the AI front,” Ives told clients in a note after the event, reiterating an outperform rating for shares.

Further Reading

Alphabet Stock Plunge Erases $100 Billion After New AI Chatbot Gives Wrong Answer In Ad (Forbes)

‘AI First’ To Last: How Google Fell Behind In The AI Boom (Forbes)

Bill Gates On Advising OpenAI, Microsoft And Why AI Is ‘The Hottest Topic Of 2023’ (Forbes)

Inside ChatGPT’s Breakout Moment And The Race To Put AI To Work (Forbes)