In early February we mentioned Artificial Intelligence (AI) in one of our weekly newsletters. This is an extract from that newsletter: “It is believed that AI will materially change how we do things. For the average investor, Microsoft, Google and Nvidia are the best ways to get exposure to AI and chatbots will soon be as indispensable as your smartphone.” Fast forward to today and the chatter regarding AI has exploded. If we look at the share price movement for the three shares mentioned above, we will see that Microsoft is up 42% year to date, Google is up 39% and Nvidia is up 195%. Other companies heavily invested in AI, like Meta (Facebook) is up 121%, Apple is up 48% and Amazon is up 47%. There are five trillion-dollar companies in the USA (see graph), and all five are heavily invested in AI.
The question we have to ask ourselves, is whether Artificial Intelligence is just another of those gimmicks that will fade away? We have seen plenty of those hot topics over the past few years that eventually just kind of fizzled out. Take for example the cannabis rage. Everybody wanted a piece of the action and it was said that cannabis would cure the world. Well, cannabis is still around and has been legalized in many places, but the share price of cannabis companies has dropped 97% from their highs.
Another fad was artificial meat. Vegetarian and vegan activists had their fifteen minutes of fame when everybody talked about how bad the methane production from cattle farming was for the environment and insisted that we should all go green and eat artificial meat. All the fast-food chains introduced the Beyond Burger at eye-watering prices and most supermarkets sold the products at very high profit margins. Now, we have to agree that the concept is pure and there will be a future for these products, but currently the cost of production means the appetite from customers is just not there. So a stock like Beyond Meat collapsed 91% over the past two years.
And let us not forget crypto. Almost everybody talked about bitcoin and how it would replace gold and all fiat currencies. According to the specialists, the dollar and euro were doomed and bitcoin would reach $100 000 by the end of 2022. Well, bitcoin did go up in a straight line but currently it struggles to get above $30 000 and there is no indication that it will replace anything any time soon.
So will AI be the same? Will the shares of the companies benefitting from the chatter also collapse? The answer is no. AI is not just a side project for these companies, it is their future. AI will take over the way we live very soon and if you are not leading in the field, you will become another Kodak (remember them?). There are only two things you have to worry about regarding AI: firstly whether you are paying too much for the companies over the short term; and secondly whether governments will strike the correct balance between regulating AI to protect humanity from being wiped out by it and giving guidance for optimum utilisation of this amazing innovation.