Are You Investing in AI Stocks? Here’s What You Need to Know
The stock market’s obsession with artificial intelligence has been reaching new heights, but is it all just hype? According to Goldman Sachs, the adoption of AI technology may not be as rapid as some investors are expecting. While there is no doubt about the potential gains from AI adoption, there seems to be some uncertainty about the timeline.
Goldman’s AI adoption tracker reveals that only 5% of U.S. companies are currently using generative AI to produce goods and services. This slower-than-expected adoption has led to disappointing guidance from many software companies related to AI, causing a sell-off in the market.
Goldman has identified four phases of the AI trade: Nvidia leading the pack in phase one, followed by companies focusing on building and maintaining AI infrastructure in phase two. Phase three involves companies incorporating AI tools to boost revenues, while phase four sees enhanced productivity from AI adoption.
While stocks in the infrastructure build-out of AI have rallied this year, phase three stocks saw a recent pullback. Investors are growing concerned about potential “overinvestment” in AI, especially among hyperscalers. However, compared to the Tech Bubble levels, capital spending and research and development in tech, media, and telecom sectors remain relatively low.
AI has been dominating the market, with ChatGPT’s introduction in late 2022 sparking a buying frenzy that briefly pushed Nvidia’s market value over $3 trillion. The ChatGPT chatbot, capable of producing human-like responses, became the fastest-growing software in history.
As we head into the upcoming second-quarter earnings season, investors should pay attention to revised sales forecasts of AI-related companies. This will be a crucial test for the durability of the AI trade and may impact investor optimism going forward.
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