MARKET ANALYSIS: How to capitalize on the breakthrough of AI?

Published by MEXEM Technical Analysis

March 2, 2023 11:10 AM
Published - February 24, 2023 @ 3:33 PM (CET)

In the past two months, you may not have been able to escape it either. AI had a major breakthrough into most living rooms through the popular chatbot ChatGPT, which was launched as a free service by start-up OpenAI on November 30. The speed of its adoption was particularly amazing and came as a surprise to most investors.
With most of the big names in the technology sector all pulling the AI card, it might be interesting to take a moment to consider the potential opportunities this new revolution brings.

ChatGPT launched on November 30th, 2022.

The rise of ChatGPT

ChatGPT, or "Chat Generative Pre-trained Transformer" for full, is a chatbot developed by OpenAI with built-in artificial intelligence (AI). The program is capable of having human-like conversations with its users, human or otherwise. It is described as being a large language model that was refined through Supervised as Reinforcement AI learning techniques and is currently continuously learning and improving based on human usage. The model relies on pre-existing factual information for answers and is incapable of forming its own opinion. Still, the model is not completely free of all biases due to its human training and input. Research would show that the model hints at pro-environmental and left-libertarian views in its responses to politically oriented questions.

The program quickly proved to be a hit, managing to capture more than 100 million users in less than 2 months after its launch. Never before had a new program succeeded in rounding this cape so quickly, an honor that before that belonged to TikTok that took 9 months. Consequently, it did not take long for the big players in the technology sector to appear on the scene, and so Microsoft (NASDAQ:MSFT) invested an additional US$10 billion in start-up OpenAI on January 23, after taking an initial stake in 2019.
Microsoft's goal was to integrate artificial intelligence models into several of its products, including search engine Bing and Microsoft Office products. Furthermore, the two parties want to continue working together on extensive but responsible AI research and bring AI to the forefront as a new technology platform.

Earlier this month, Microsoft already launched an updated version of its search engine Bing, which incorporates OpenAI's AI capabilities to improve results on searches.
A threatened Alphabet (NASDAQ:GOOGL), which has been lord and master in the world of search engines for years with Google Search tried to get even ahead of its competitor by releasing, a day before the launch of the revamped Bing, its own AI-based chatbot called Bard. However, the quick launch of Bard at an event in Paris, which included several examples of its scope, disappointed by containing several errors. A heavy blow to the search engine giant that currently manages 93% of market share, compared to a weak 3% for Bing.

Investing in AI: which players to look at?

As cited earlier, obviously Microsoft and Alphabet are the two big names that will be competing at the forefront of the whole thing.  The most important AI development of the moment is the power that these language models bring to the fore where they can summarize, translate, predict and use huge data sets in seconds to create new content. It is just that breakthrough that seems to finally give Microsoft a chance to attack Google search and thus become more relevant itself within the search engine market. Microsoft CFO Amy Hood dropped earlier this month that she assumes that the total value of the digital advertising market is about $500 billion. $200 billion or 40% of this total revenue is generated by ads in search engines. Specifically, this means that for every additional 1% of market share that search engine Bing, and consequently Microsoft, manages to snatch from Google, it can count on some $2 billion of additional ad revenue.

Microsoft vs. Alphabet - since presentation Bard Feb. 8, 2023

Alphabet (GOOGL) investors are also reckoning with this new threat and were momentarily startled at Bard's disappointing presentation on Feb. 8, triggering an 11% difference in its share price to date relative to Microsoft. It will be a wait and see to see if Alphabet manages to defend its market share without going deep into the pockets of rising costs tied to integrating their AI features. For example, Morgan Stanley analyst Brian Nowak calculated that for every 10% of searches Google search would process with AI language models, operational costs would increase by $1.2 billion.

Another angle, of course, is to look at some of the large companies playing a role in this AI acceleration. Think of companies like IBM, Nvidia, Adobe or Advanced Micro Devices.

For example, IBM (NYSE:IBM) has been delving into AI applications for years, although they are more focused on developing AI and Machine Learning for enterprise computing rather than customer-facing devices or programs. IBM is trying to develop foundation models, like ChatGPT's language model is one, to be deployed in different application areas across multiple industries.

Another player in the AI world is undoubtedly Nvidia (NASDAQ:NVDA), which is eager to see increased demand for cloud-computing hardware components, as they supply the vast majority of the processors in question. According to David Readerman of Endurance Capital Partners, Nvidia components would be part of about 75% of all servers running AI-driven processes in the future.

Likewise, Nvidia's major competitor Advanced Micro Devices (NASDAQ:AMD) will also play a major role in this, and CEO Lisa Su recently noted in a Barron's interview in January that "Artificial Intelligence is a defining megatrend in technology." AMD is in a position where all the technologies it is developing have a tangent to the breakthrough in AI, which means they are also looking to the future brightly.

Adobe Inc (NASDAQ:ADBE) may also do well with advances in AI processes. As a dominant player in technological creativity tools such as Photoshop and InDesign, they foresee that the wider adoption of AI in various sectors will benefit the amount of content creation, as more people become creators.

If you prefer to play a shorter game, it might be interesting to take a look at (NYSE:AI), where AI plays the lead role throughout the company. This is a Software as a Service (SaaS) company that helps other companies roll out large AI applications. For example, it helped launch ChatGPT. To date, the company does not seem to have any direct competition offering a similar service, which gives it a first mover advantage within this market.

Outlook 2023

So the AI market, which according to research by the International Data Corporation (IDC) could triple in the next 5 years, from $118 billion in 2022 to $300 billion in 2026, the opportunities are there for the taking. Below you get a preliminary overview of how Wall Street analysts look at the price of the stocks discussed for the next 12 months. You can always find these Price Targets by logging in to the MEXEM client portal.

Microsoft (NASDAQ:MSFT)




Advanced Micro Devices (NASDAQ:AMD)

Adobe Inc. (NASDAQ:ADBE)



Ready to get started?

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Maecenas tristique justo a molestie consequat.

By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. View our Privacy Policy for more information.