Nvidia is the most frequently mentioned stock now. Everyone talks about AI, and Nvidia is the beneficiary. But we need to be careful with hype or fads—it is better to be well-diversified and not overestimate the fashion of the day. Not surprisingly, also for AI, the first canary in the coal mine1 has arrived.
1. Funding Surge and Caution
The AI landscape is ablaze with innovation and investment. Over the past three years, a staggering $330 billion has flowed into 26,000 AI startups. These companies promise groundbreaking solutions, from autonomous cars to emotional chatbots. However, caution is warranted. Many startups are yet to turn into a profit, and the influx of capital could lead to oversaturation. As investors, we must tread carefully, distinguishing between genuine potential and speculative hype.
2. The AI Rockstars and Their Bold Claims
Let’s meet some of the AI luminaries:
- Jensen Huang (Nvidia): Huang believes that the Blackwell architecture platform could be the most successful product in computer history. While we share his optimism, we recognise that the semiconductor cycle remains cyclical. Demand surges are followed by inventory adjustments—a dance as old as silicon itself.
- Sam Altman (ChatGPT): Altman’s enthusiasm is infectious. He likens AI’s impact to the discovery of agriculture and the industrial revolution. While AI will undoubtedly enhance productivity, doubling the global economy within a decade is a lofty goal. Prudent scepticism tempers our excitement.
3. The Art and Science of AI Investing
As investors, we must blend art and science. Here’s how:
- Education: Understand AI’s nuances—machine learning, natural language processing, and computer vision. Grasp the different types of AI, from reactive systems to self-aware models.
- Diversification: Consider individual AI stocks or explore AI-focused exchange-traded funds (ETFs). Diversify across companies and sectors.
- Risk Management: AI isn’t immune to market fluctuations. Manage risk by staying informed and avoiding herd mentality.
Remember, AI is both a technological marvel and a financial frontier. By navigating the hype or fad, we can harness its transformative power while safeguarding our investments. Avoid hypes – broad diversification is the only free lunch financial markets offer.
- The phrase a, or the, canary in a, or the, (coal) mine denotes an early indicator of potential danger or failure. It refers to the former practice of taking live canaries into coal mines to test for the presence of toxic gases, particularly carbon monoxide, the illness or death of the canaries serving as an indication that such gases were present. ↩︎
