The rise to prominence of ChatGPT has made artificial intelligence one of the key themes for companies in 2023, and numerous players are set to reap its benefits in the coming months.
“Unlike many other innovative technologies that have relatively short hype cycles,” such as the metaverse, “we believe generative AI may enjoy a longer cycle,” D.A. Davidson analyst Gil Luria told MarketWatch. “The rate of innovation around it right now is explosive, and that should continue as a wide series of products are introduced and transformed.”
Shares of companies big and small, and across industries, have gotten a lift from AI involvement this year, as Wall Street has rushed to get in on the latest craze. In a way, the frenzy is reminiscent of older investment fads, such as when companies tried to market themselves as blockchain plays amid the late 2017 cryptocurrency boom, though AI has already proven itself able to offer tangible benefits to businesses.
But while AI had the potential to make a “meme stock” earlier in the year, helping to take shares of BuzzFeed Inc. BZFD,
With so many businesses touting their AI credentials, the biggest winners could be the companies that live and breathe the technology. While BuzzFeed’s stock has given back its AI-fueled gains, shares of C3.ai Inc. AI,
The stock has rocketed 132% so far this year, with the company counting organizations including Shell PLC SHEL,
“We believe there are only two publicly traded companies that will see the impact of this revolution on 2023 results,” D.A. Davidson’s Luria told MarketWatch. Those are Microsoft Corp. MSFT,
Related: BuzzFeed stock soars more than 90% after report it will use OpenAI to create content
Microsoft, which has integrated ChatCPT into parts of its business, saw its shares ride to their best week in nearly eight years earlier in March, fueled partly by the ChatGPT buzz. Back in January, Microsoft announced a multiyear, multibillion-dollar investment in OpenAI, setting the stage for a prominent AI battle with Alphabet-owned Google GOOG,
For Microsoft, the immediate benefit is from the share gains in Bing, according to Luria. “For every point of share they take, they will get an incremental 10 cents a share of earnings,” he said, noting that Microsoft’s Azure cloud business is also a winner. “We believe the Azure business will gain share this year, as practically all OpenAI and related volumes will happen on Azure.”
By 2025 at the latest, he sees the potential for 45 cents to 50 cents in earnings upside fueled by AI tie-ins with Azure.
C3.ai, which makes AI software used by manufacturing, government, financial services, oil and gas and defense companies, is touting the ability of its generative-AI technology to integrate with AI technology from OpenAI and Google.
The company cited “substantially improving” market sentiment alongside its early March earnings report, and it’s been garnering positive attention from analysts. Earlier this month, D.A. Davidson analyst Luria reiterated his buy rating and $30 price target, citing the potential for C3.ai’s generative-AI products to increase enterprise adoption of AI.
“We believe their new generative-AI product will drive an acceleration of growth by the end of the year,” Luria told MarketWatch. “C3 has been cultivating AI-based relationships with corporate customers for years, and we believe generative AI will be the killer app that capitalized on these relationships.”
AI momentum is building in the field, according to Wedbush analyst Dan Ives, who raised his C3.ai price target to $24 from $13 earlier this month. “The company continues to experience increased demand for its AI solutions that are designed to increase a range of applications across industries fueling tailwinds in the market,” he wrote in a note to clients.
Ives told MarketWatch that there are real demand drivers for AI technology. “While there could be some froth, we believe this is an $800 billion market over the next decade, with a handful of players leading the way,” he said via email. “Right now it’s Microsoft at the top of the mountain, but others such as Google are climbing quickly. C3 is right place, right time.”
There can be no doubts about C3.ai’s focus as “it has AI in its name,” said Rishi Khanna, the CEO of Stocktwits, a social platform for investors and traders. He wonders whether other companies will rebrand to follow C3.ai’s lead.
Related: C3.ai stock rockets as CEO Siebel touts ‘dramatic change’ in sentiment amid AI hype
“We saw it in the dotcom days, and with crypto, where people were putting it in their names. Does this become a fundraising/capital-raising tool?” he asked.
Khanna has seen “this AI theme blend across asset classes,” he told MarketWatch. Not only have cryptocurrency and technology players hopped on the bandwagon, but bigger companies in a variety of industries have sought to make it known that they’ve found ways to integrate AI into their businesses.
Beyond C3.ai, other presumptive AI beneficiaries are prominent enough that they don’t need to stick the theme in their names for investors to understand their potential with the technology.
Stocktwits’ Khanna sees chip giant Nvidia Corp. NVDA,
Nvidia’s stock has risen 85% so far in 2023 and is heading for its best quarter in more than two decades. After losing its luster last year as the stay-home economy cooled, Nvidia’s stock is trendy once again, with analysts hyping the chipmaker’s unique AI potential.
“AI requires a new computing platform; Microsoft and Nvidia are early leaders and great partners in building one helped by OpenAI,” Oppenheimer analyst Timothy Horan wrote in a note to clients this week. “NVDA is plumly positioned with what are widely regarded as industry leading GPUs [graphics processing units], leveraging an extensive AI software stack that will work to gain AI wallet/compute share in the cloud.”
D.A. Davidson’s Luria notes that it could be some time before we see the broader impact of the AI revolution beyond the immediately apparent beneficiaries. Many other companies and industries will be transformed, he told MarketWatch. “But it may take months and years before we know who else will benefit,” he added.
But as investors salivate over the potential of AI, some regulators and technologists worry the craze is generating steam too quickly. The Federal Trade Commission recently warned companies against relying on unfounded AI hype in their marketing. And high-profile figures including Tesla Inc. TSLA,
Wedbush analyst Ives notes the current soft macro environment and characterizes AI as an “education sale” at the moment. There will clearly be speed bumps along the way, and Wall Street could head for the exits at the same time, he told MarketWatch. “But this AI trend is massive and here to stay, we believe,” he added.
Read: Elon Musk and Steve Wozniak are among those signing petition calling for halt to AI development
Additional reporting by Wallace Witkowski and Emily Bary.