U.S.-CHINA CHIP WAR: Moment Of Truth Looms For Nvidia, Apple And The World
The big rally in artificial intelligence stocks may be done for a while, but the drumbeat in AI news continues, with Amazon.com (AMZN) and Facebook-parent Meta Platforms (META) this week’s highlights. But the cooling off of AI stocks such as Nvidia (NVDA) and Palantir (PLTR) may be at the top of investors’ minds.
NVDA stock is up 191% in 2023 but has retreated 15% from a 52-week high of 502.66 set on Aug. 24. PLTR stock has retreated 23% from its 52-week high.
Aside from Nvidia, Microsoft (MSFT) and cloud computing giants, it’s not clear what companies will capture new revenue near-term from generative AI. Many software makers are testing monetization strategies.
“Tech stocks have remained under pressure in September, with rising yields and mixed results weighing on performance,” said a UBS report published Thursday. “The Nasdaq 100 index is trading around 8% below its July peak. But, we believe the recent weakness provides a good opportunity to add exposure to artificial intelligence leaders.”
Demand from cloud computing giants Amazon Web Services and Microsoft for Nvidia computer chips that crunch AI apps drove up NVDA stock. Microsoft is the biggest investor in OpenAI, the leader in generative AI. Microsoft holds a 49% stake in OpenAI, which drives ChatGPT users to Microsoft’s cloud services.
Playing catch-up, Amazon on Monday said it would invest up to $4 billion in Anthropic, a rival of OpenAI. Amazon will get a minority stake in Anthropic, which will use Amazon’s cloud computing services.
That’s the playbook for AI stocks such as AWS, Microsoft and Google-parent Alphabet (GOOGL) going forward — use AI startups to drive demand for cloud services. Google has invested in Cohere, another builder of large language models.
LLMs provide the building blocks to develop applications. They help AI systems understand the way that humans write and speak.
Generative AI models process “prompts,” such as internet search queries, that describe what a user wants to get. Generative AI technologies create text, images, video and computer programming code on their own.
Industry-specific versions of generative AI are expected to use company data to train AI models.
Another builder of AI models is social media giant Meta, which this week hosted its annual developer conference.
The company took the wraps off a generative AI consumer chatbot strategy with the launch of Meta AI. For businesses advertising on the social media platforms, Meta launched AI Studio, a platform to help developers build artificial intelligence chatbots.
In addition, Meta launched a new image generating model named Emu.
Not all analysts came away happy from the event.
“What was missing is AI business/merchant tools for WhatsApp and Messenger that could drive improved monetization for the messaging platforms,” Mizuho Securities said in a note to clients.
Monetization of artificial intelligence products is now the main issue for many AI stocks. Microsoft’s business AI assistant, Office 365 Copilot, will have general availability on Nov. 1, ahead of expectations.
M365 Copilot will be priced at $30 per user monthly.
However, many other software firms are still testing how to monetize AI products, including Salesforce (CRM), ServiceNow (NOW), Adobe (ADBE) and Workday (WDAY).
Further, Workday discussed its AI strategy at an analyst day Sept. 27.
“Unlike some other software companies, Workday is including much of its incremental AI functionality within its current products for no additional cost (unless some usage limits are exceeded in some cases),” William Blair analyst Matthew Pfau said in a note. “However, as Workday and its customers figure out the value of new AI functionality, we believe there is an opportunity for price increases down the road.”
Meanwhile, RBC Capital analyst Rishi Jaluria holds a cautious view on AI stocks.
“For companies that aren’t named Microsoft, we’re generally modeling immaterial direct genAI revenue in 2024, a level of conservatism we believe is supported by our checks and company conversations,” he said in a note.
Follow Reinhardt Krause on X, formerly called Twitter, @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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