Investors looking for undervalued AI deals

Invested investors are searching for undervalued opportunities in an over-valued market.

In November Microsoft-backed OpenAI launched its ChatGPT bot, which allows developers to invest in the potential of AI, not just by buying into a bubble.

Shares of Nvidia, a tech firm that makes computer chips that train AI systems, have almost doubled since ChatGPT's launch. Nvidia surged 25 per cent on May 25 alone after forecasting a sales jump.

Shares of C3.A, a Los Angeles-based AI software firm, have surged, causing the company to lose shares. The stock ticker has gained 149 per cent this year, and Palantir Technologies, which has launched its own AI platform, is up 91 per cent year-on-year.

ChatGPT, the startup behind ChatGPT, is pursuing exposure to generative AI, a technology that combines data analysis with extensive data sets to generate text, images, and computer code. Businesses are using generative AI to speed up video editing, recruitment, and legal work.

Consultancy PwC expects AI-related productivity savings and investments generating US $15.7 trillion in global economic output by 2030, almost equivalent to China's gross domestic product.

Investors are weighing whether to jump on the AI train now, or exercise caution, given the increasing concern among regulatory officials about the tech's potentially disruptive impact.

There are clearly going to be winners in all this, said Niall O'Sullivan, chief investment officer for multi-asset EMEA at Neuberger Berman. Instead of backed hot start-ups or rushing into highly valued AI-based businesses that might fail, seasoned investors are taking a lateral view to back already proven tech companies that might benefit from the longer-term trend.

It's going to be as transformative as the internet, as the mobile internet, as the mainframe computer was, said Alison Porter, a tech fund manager at Janus Henderson, whose funds have positions in Nvidia.

But Porter cautions that we are still very early on the use cases for AI because tech groups such as Microsoft and Alphabet have strong balance sheets that enable them to invest in many different technology advancements, including their recent focus on AI.