New York () — Artificial intelligence is the most talked about tech trend of the month.
Industry giants Google, Microsoft and China’s Baidu have made big artificial intelligence (AI) announcements in recent days as the ChatGPT bot is taking the corporate world by storm.
All this AI news has helped boost the shares of Baidu, Microsoft and Google owner Alphabet this year. However, Alphabet went down on Wednesday after a crashed demo from Bard, a rival of ChatGPT.
Investors have also been bidding for the shares of much smaller, unprofitable companies trying to make a name for themselves in the AI arms race.
Take a look at the shares of artificial intelligence software company C3.ai. which have more than doubled this year, to around $26. Locking in the super-relevant and easy-to-remember ticker symbol “IA” is likely to help attract investors. And also the fact that the company is run by tech veteran Tom Siebel, who sold his eponymous software company Siebel Systems to Oracle in 2006.
SoundHound AIwhich makes speech recognition and other audio software, has also seen its shares more than double this year.
SoundHound AI CEO Keyvan Mohajer told analysts in a November conference call that “our ambition is to make conversational AI even better than humans at understanding natural language and also as human as possible in the way in which he responds and interacts”.
and then there is BigBear.ai, which provides artificial intelligence solutions to US intelligence agencies and other parts of the federal government. Shares of the analytics company are up nearly 700% so far in 2023.
The AI stock market mania is reminiscent of other speculative fads in the world of technology. Remember when cryptocurrency-related stocks skyrocketed in 2021 and then tanked in 2022? And let’s not forget the epic rise of many dot com companies in the late 1990s and their subsequent fall in 2000.
Therefore, investors should avoid getting caught up in the emotion of the moment. Even Mandy Long, who recently took over as CEO of BigBear.ai, admitted as much.
“We are going to see a level of normalization. Will people be talking about ChatGPT every day for the rest of our lives? Probably not,” he 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 riotous trend.
Investors may be ahead of themselves
Of course, AI is not a passing fad. The fact that many of the world’s largest technology companies are embracing artificial intelligence is proof of this. (We’re looking at you, Microsoft, Meta, and IBM.)
Long noted that BigBear.ai generates about 90% of its revenue from the US government, a relatively stable customer that will continue to need AI technology in the long term.
“We are a modern data mining company,” he said, noting that the company is a partner and competitor to big data leader Palantir.
And just as the dot-com bubble paved the way for companies like Amazon, eBay, and Priceline owner Booking Holdings to emerge from the rubble as stronger, larger, and more diversified businesses, a number of AI startups could too. survive today’s problems and prosper in the long term.
It may only take some time before the industry matures. C3.ai, BigBear.ai and SoundHound are not currently profitable and none of them are expected to make money this year or in 2024, according to analysts who cover them.
All three stocks were also crushed in the 2022 bear market and are still well below their 52-week highs. SoundHound and BigBear.ai recently went public through mergers with so-called blank check companies or special purpose acquisition companies. SPAC actions were particularly affected last year.
BigBear.ai hopes to have turned a corner after raising $25 million earlier this year through a private placement of shares. Long said the company and investors were distracted by its thin liquidity position and needed to raise capital to keep growth on track.
And SoundHound AI’s Mohajer remained bullish, telling analysts in November that “even with a weakening macroeconomic environment, demand for AI field solutions continues to grow.”
However, times are still tough for many smaller tech start-ups, especially when the Federal Reserve prepares for more interest rate hikes to combat inflation. Siebel admitted as much on C3.ai’s most recent quarterly conference call with analysts.
“We believe that technology companies and technology stocks will continue to face headwinds as long as the Fed keeps its foot on the brake,” Siebel said in December. “I think the collateral damage will be more significant than people think.”
But he is still optimistic about next year, saying the company “will be bigger, stronger, cash positive, profitable, a clear market leader and well positioned to benefit from the inevitable stock market rise that will ensue.”
