(BFM Bourse) – Several titles, Nvidia and Microsoft in the lead, have benefited from a stock market frenzy for this form of artificial intelligence. This is not without causing questions about current valuations.
This is the inevitable theme of this first half of the stock market year: the rise of generative artificial intelligence (AI), that at the heart of the reactor of ChatGPT, the conversational robot of OpenAI, or of Bard, that of Google.
The “buzz” generated by the adoption by the general public of these technologies as well as their real or potential applications has reverberated on the markets, with investors trying to identify the potential losers and winners of this phenomenon.
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Two “big caps” have fully benefited from this market enthusiasm: Microsoft and Nvidia. The first has invested billions of dollars in OpenAI and has above all integrated its technologies into its services, in particular in its Bing search engine and its cloud activities (dematerialized computing). Nvidia, for its part, saw its share price jump by 170% this year, as the American group designs essential graphics processors to provide the computing power necessary to train and develop ChatGPT and Bard. Nvidia’s stratospheric forecast for its second quarter – $11 billion versus around $6-7 billion for a “normal” quarter – provided concrete evidence for market expectations.
Other companies are stepping into the breach. This is particularly the case of C3.ai, a software specialist in AI, which has seen its price triple since the beginning of the year. Ditto for Bigbear.ai, a company specializing in AI analysis that recently won a major contract with the US Air Force. In France, Capgemini recently experienced a stock market boom in one session, propelled by the extension of a generative artificial intelligence contract with Google Cloud, with the creation of a center of excellence.
“Baby Bubble”
This stock market frenzy alone or almost allows the S&P 500 to swim in the green since the start of the year. In any case, this is the observation made by Societe Generale strategist Manish Kabra in mid-May. Quoted by Bloomberg, he estimated then that without the actions carried by the IA, the broad index of Wall Street would lose 2%.
So much so that the question of a bubble is no longer taboo. In a note, Bank of America evoked “a baby bubble” generated by artificial intelligence which was THE theme of the month of May and thus drained a record of 8.5 billion dollars of capital flows in the actions of the groups tech for the week ending May 31. “The recent jump in valuations of companies in the AI sector has raised fears of a bubble,” notes UBS.
Right or wrong? “The economy as a whole is not growing at the rate of the gains that [les] stock prices. This makes me worried about valuations”, judge with the wall street journal Andy Constan, Managing Director of Damped Spring Advisors, a market research firm.
For example, Nvidia is currently trading with a P/E ratio – i.e. the share price divided by the expected earnings per share – of more than 200, against 58 for Hermès, the value of the CAC 40 which has the highest multiple. generous on this basis.
Nothing to do with the crypto bubble
Still, the case of Nvidia remains singular, the company constituting a “unique” case, judge Daniel Newman of Futurum Research, interviewed by MarketWatch.
And that, unlike other stock market “buzz” that have emerged, for example companies specializing in meals without meat but recreating its taste or even SPACs, this stock market craze does not seem to rest on sand.
UBS distinguishes generative AI from these other fads, as adoption of ChatGPT passed the 200 million user mark. “We believe that AI, or generative AI, has clear use cases for consumers and businesses, which sets it apart from ‘hyped’ technology trends like 3D printing, which has failed. to take off significantly,” argues the Swiss bank. According to her, the market for AI services and platforms is expected to grow from $36 billion in 2020 to over $90 billion in 2025.
“While some stocks in the sector now look expensive, which leads us to advise investors to be selective, we also believe that the growth potential of AI remains significant,” continues the bank.
“It is really difficult to consider that this is a bubble. The speed of ‘pricing’ has been very rapid, but in the end it is mainly large groups that benefit from this ‘AI effect’ and the market is showing little -be generous in its valuation expectations”, notes Alexandre Baradez, market analyst for IG France. “These companies already have a very profitable ‘core business’, AI only adds value. We can move towards consolidation”, but not towards “the bursting of a potential bubble”, judge- he.
Jospeh Zappia, co-director of investments at LVMW Advisors, also strongly relativizes this concept of bubble, with the wall street journal. Notably because the interest of small holders has not yet reached the nerve center.
“If I were to use past frenzies as a point of reference, it has nothing to do with people telling me two years ago, ‘Which ‘coins’ should I buy? The cryptocurrency craze was on a whole new level,” he concludes.
Julien Marion – ©2023 BFM Bourse