Just as markets had been struggling under the strength of financial headwinds from the many economic pressures from 2022, the emergence of generative artificial intelligence has provided a major boost to tech stocks.
Could the revolutionary impact of AI help to deliver a bull run for tech stocks?
The S&P 500 has rallied by an impressive 7.6% for the first half of 2023, which is an impressive feat following pullbacks of over 24% between January 1st and mid-October 2022.
Much of this strong performance can be attributed to a rise in optimism toward AI-focused stocks following the success of the chatbot, ChatGPT.
Although 2023 growth seemed anything but assured for tech stocks going into 2023, large-cap tech firms have been the star players of Wall Street so far this year.
This has helped to drive the Nasdaq Composite to nine-month highs in the process as investors identified blue-chip tech as a suitable safe haven investment ahead of a possible coming recession.
David Russell has been particularly bullish towards the short-term prospects of large-cap tech stocks and ETFs, with the vice president of marketing at TradeStation stating that we’re set to see a “significant boom of AI profits and growth.”
“We have new business, new products, which means higher margins and better pricing,” claimed Russell.
“We’re entering where the market is moving away from cloud computing, cloud migration, and e-commerce. It [AI] is a game changer.”
One of the biggest stars of the AI tech stock boom in 2023 has been Nvidia Corp. (NASDAQ: NVDA). So far in 2023, the chip maker’s stocks have rocketed by 113%, dispelling the notion that tech stocks could remain subdued throughout the year.
Jensen Huang, founder and CEO of Nvidia has predicted that the company’s revenue from generative AI will grow significantly in the coming 12 months, from amounting to a "tiny, tiny, tiny" single-digit percentage to "quite large, exactly how large it's hard to say."
Implications of the Growth of Generative AI
The potential of generative artificial intelligence could raise global GDP by 7%, according to a recent Goldman Sachs report.
This would amount to around $7 trillion in GDP alongside a 1.5% boost to productivity growth over the next 10 years.
While interest in artificial intelligence and generative AI is nothing new, the emergence of ChatGPT, a chatbot that’s capable of holding intricate conversations with humans and generating multimedia content, represents a breakthrough that could lead to an explosion in efficiency for business operations at a fraction of the cost.
ChatGPT stands as one of many innovations in generative AI emerging in 2023, with other tools like DALL-E, Canva, and Pictory among many other leading platforms.
Because much of the technology surrounding generative AI is still in its infancy, many of the major players in the industry remain startups and private companies, but as we’ve seen with Nvidia, the rise of artificial intelligence is set to impact a vast array of different stocks in the near future.
So how can investors prepare for the sustained growth of generative AI? And are there any stocks available today that could show similar growth to Nvidia?
Generative AI Stocks to Watch
The reason that AI has provided boosts to large-cap tech firms is because of clear signs of intent to adopt generative AI solutions, while other firms like Nvidia are set to see their own hardware become increasingly sought after as the global appetite for generative AI continues to grow.
So, which stocks should investors consider adding to their portfolios when embracing generative AI? Let’s take a look at three major players that could experience growth:
Microsoft Corp. (NASDAQ: MSFT)
Although ChatGPT creator OpenAI isn’t a public company, Microsoft appears set to reap the rewards of its growth after investing $1 billion into the startup in 2019 as part of a partnership that also saw Microsoft Azure become OpenAI’s cloud provider.
In January 2023, Microsoft announced a further multibillion-dollar investment.
Market analyst, Brad Sills, has claimed that Microsoft will ultimately integrate ChatCPT and its own Prometheus AI model to reinvent the firm’s Bing search engine.
The implication of this is that Microsoft today stands as the Wall Street company that’s best positioned to benefit directly from the emergence of ChatGPT as a leading name in the generative AI landscape.
Amazon (NASDAQ: AMZN)
Away from the furor surrounding ChatGPT, Amazon has been working on large language models that could offer a vast range of AI tools for Amazon Web Services and is likely to stand in an excellent position to benefit from the rise of cloud computing services that AI will bring.
This has the potential to position Amazon as a suitable option for investors to add, particularly after a difficult 2022 that saw the stock retrace almost 50% of its market value.
The boost that AI tools could bring to Amazon may pave the way for a more sustained recovery.
Alphabet (NASDAQ: GOOGL)
Given that the cornerstone of Alphabet is based on a Google search engine that’s ripe for AI innovation, it’s certainly a stock that’s worth watching.
While the company is best known for Google’s services, Alphabet has a long list of AI ventures that focus on areas like machine learning and robotics. The many subsidiaries include DeepMind, Nest, and Waymo.
Furthermore, AI algorithms are at the core of Google’s quality of service, and Alphabet’s work in the field of cloud computing means that the growth of AI could lead to revenue streams throughout the firm.
The Return of Cautious Optimism?
Of course, buying into tech stocks in the wake of a disastrous 2022 means that investors must adopt a more holistic approach when exploring value options to add to their portfolios.
“Reaching the highs of 2021 will not only depend on the company's specific results, but also on the market situation as a whole,” warned Maxim Manturov, head of investment advice at Freedom Finance Europe.
“For this it is important that the Fed starts cutting rates, thus giving support to the stock market.”
With Federal Reserve Bank of St. Louis President James Bullard stating that 2023 is likely to see two more rate hikes to control inflation, it’s essential that investors remain cautious about the short-term prospects for stocks.
In spite of this, early 2023 market performance for key AI-facing companies shows that there’s still widespread positive investor sentiment towards the biggest players that could benefit from generative artificial intelligence.
With Nvidia’s Jensen Huang anticipating a transformative 12 months for his company’s relationship with artificial intelligence, investors may be presented with an excellent buy opportunity.
However, in these more volatile times, it’s essential that investors conduct their due diligence before diving in.
