How much of A.I. is just hype? A bull and a bear share their tips on how to invest
Artificial intelligence has taken the investing world by storm since early this year — thanks largely to the emergence of ChatGPT, which triggered a wave of buying into AI-related stocks. But it’s also had its detractors , and some analysts have warned of the risks of investing in AI. Should you jump on the trend or stay skeptical? A bull and a bear faced off on CNBC’s ” Street Signs Asia ” on Wednesday. ‘Money to be made’ in the long run AI is “here to stay,” says Jason Ware, chief investment officer at Albion Financial Group. “It may be receiving a lot of sudden attention these days, mainly due to ChatGPT. But the reality is it’s been with us for many years, mainly in the background through what’s known as narrow AI,” he said, citing Google Maps, Siri and other digital assistants. He said support for AI will only continue to grow, with “money to be made” over the long run. Ware added that advancements in AI — in particular, machine learning, deep learning and natural learning — will accelerate. “I mean, there’s some large cap, high quality, good companies today that are going to be made better tomorrow because of innovations in AI,” he said, naming tech giants such as Alphabet , Microsoft , Apple and Oracle . “Not every company in AI is going to be a winner, but there are quality companies you can own within the space.” ‘Excessive’ valuations David Dietze, senior investment strategist at Peapack Private Wealth Management, says investors have to be “so cautious.” Valuations have become “excessive,” he said. “More than half of the market’s gains this year are due to AI hyped stocks. By the numbers it’s been 45%, $1.4 trillion of new market cap,” he said. One example is Meta, which has jumped over 100% this year partly as a result of its pivot from the metaverse to AI, Dietze said. “Lots of companies have [few] real AI plans, but are just touting AI exposure to enhance their stock price and profile,” he said. “Every company is jumping in,” and the competition could keep prices of AI-related services down, Dietze said. Regulation and privacy issues AI has privacy and regulation issues to address, Dietze added, citing the example of voice replication. “So when you get the government regulation on top of the competition, all the excess profits may well be squeezed out,” Dietze said. But Ware said change is inevitable. “You either evolve with that change or you die. And I think the companies that are evolving with AI and using that in their businesses to improve their productivity and efficiency and to help grow their businesses, and … that’s where we want to be — with some core companies that are quality,” he said. Ware said regulation isn’t new anyway, pointing out that Big Tech has been under the “thumb of regulation for a long time.” “We want to be invested in the area that’s going to contribute to the economics of these businesses, and I’m betting on AI, not betting on government regulation as being kind of a net contributor to earnings over time,” he said. How to invest Dietze and Ware agree on one thing: Avoid investing in pure-play AI companies. Dietze is skeptical about investing in AI, but he has a piece of advice for those who’re still keen: “In terms of the gold rush [it was] often the people made the money investing in the companies that provided the picks and shovels [versus the actual gold miners]. Go with those companies that provide the tools for a more expansive tech sector.” For such larger tech companies, AI is only going to be a small part of total revenues and profits — so it’s safer, although returns will be more muted, he said. Ware added, “Forget making bets on ‘pure play’ AI companies with no earnings, no moat, and now [higher] costs of capital. That’s speculation, not investment.” “The idea here is to own good businesses today with the promise of even better businesses tomorrow,” he said. In addition to some of the Big Tech names, Ware said, best-in-breed chip firms will be direct beneficiaries. Companies such as Visa , UnitedHealth and Honeywell will use AI in less direct ways to improve their businesses, he said.
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