Small investors pile into AI amid viral sensation of ChatGPT

The artificial intelligence 'arms race' is inspired by the success of ChatGPT, the fastest-growing app in online history

Tue, 07 Feb, 2023 - 15:31

Medha Singh

Small investors are piling into small-cap firms that employ artificial intelligence amid intensifying competition between tech titans Google parent Alphabet and Microsoft to secure leadership in the next big driver of growth.

The viral success of ChatGPT has turned the spotlight on AI on Wall Street, reminiscent of the blockchain hype from a few years ago when shares of companies remotely associated with the technology surged.

The $3bn (€2.8bn) AI software firm C3.ai was the fifth most actively traded on Fidelity’s platform for small investors this week, while drawing record daily retail inflows worth $31.4m, according to Vanda Research.

“Small-cap firms have AI as a much larger part of their business than the larger ones,” said Matthew Tuttle, chief executive officer of Tuttle Capital Management on the reason behind retail investors’ focus on the smaller firms.

Mr Tuttle said he had shorted C3.ai shares about a week ago, but was looking to switch to the long side because “that’s where the action is”.

SoundHound, which offers a voice AI platform services, and Thailand’s security firm Guardforce AI, have more than doubled so far this year, while analytics firm BigBear.ai gained nine-fold in value.

“We are in a new and exciting AI arms race right now, and speculative investors are clearly trying to find the potential winners in the increasing growing caldron of AI adjacent companies,” said Arthur Hogan, chief market strategist at B Riley Wealth.

Google-owner Alphabet said this week it would launch a chatbot service Bard and more artificial intelligence for its search engine as well as developers.

Microsoft is in a strong position in the AI race due to the combination of its close partnership with OpenAI and its Azure capabilities around compute and data, said Barclays analyst Raimo Lenschow.

US-listed shares of Baidu climbed nearly 15% at one stage on Tuesday after the Chinese search engine said it would complete internal testing of a ChatGPT-style project called “Ernie Bot” in March.

A flurry of Chinese AI stocks also rallied, as the global frenzy around the Microsoft-backed chatbot sensation ChatGPT spurred speculative bets on the new technology.

Just two months after its launch, ChatGPT — which can generate articles, essays, jokes and even poetry in response to prompts — has been rated the fastest-growing consumer app in history.

It has prompted many tech firms to double down on the heavily hyped generative AI technology, which until recently existed more in the background than as a solid contributor to the bottom line.

“There will clearly be winners and losers in the markets current new thing AI, but it will also take some time to ascertain how all these artificial intelligence focused companies plan on monetising this exciting new technology,” Mr Hogan said.