What frustrates me the most about this AI boom… FOMO is back… Beware of AI ETFs... My top two strategies to play the AI boom...
- Are you sick of hearing about AI yet?
It’s the hottest craze on Wall Street. AI-related stocks are ripping, as I’ll show you...
And it’s thanks, in large part, to the AI-powered chatbot ChatGPT.
If you haven’t tried ChatGPT yet, you should. It can answer pretty much any question in a conversational way, as if you’re talking to a human.
I first wrote about this breakthrough technology (before it was called ChatGPT) in the November 2021 issue of Disruption Investor.
ChatGPT is now the fastest-growing product in history!
In only two months after its release, over 100 million users have signed up.
For comparison, it took the second fastest–growing app, TikTok, nine months to reach 100 million users. Google needed a year, and Instagram needed two years.
- But here’s what’s frustrating me about AI…
I’m excited about all the possibilities AI will bring…
AI can help discover new cures for diseases. It promises to ease up traffic in cities and eliminate tedious tasks from your schedule.
But here’s the problem…
When a breakthrough technology like AI bursts onto the scene, it’s always difficult to invest in it.
There are hundreds of AI projects with tremendous potential in development. But most of them are off-limits to ordinary investors. They’re either owned by a private company or a tech giant like Google (GOOGL) or Amazon (AMZN).
ChatGPT, for example, is owned by private company OpenAI. OpenAI doesn’t trade on the stock market. And it likely won’t anytime soon.
When new technologies emerge, you’re usually left with only a handful of “pure-play” stocks to choose from. And these quickly become overcrowded trades...
- AI stocks are surging this year…
C3.ai (AI) jumped 95%…
SoundHound AI (SOUN) soared 192%...
And BigBear.ai (BBAI) is up 377%...
This looks like bubble behavior to me.
Think back to the 2000 dot-com bubble. A company could boost its stock price 100% just by adding “.com” to its name.
Folks piled into dot-com stocks. They did it for fear of missing out (FOMO) on the internet’s success. In the end, they inflated one of the largest bubbles in human history.
FOMO is why the three AI stocks—AI, SOUN, and BBAI—are surging. They’re the only pure-play AI stocks on the market most investors know about.
Last month, BigBear.ai surged 353% in a single day when news broke it had landed a $900 million contract with the US Air Force.
It sounds great on the surface… until you dig deeper and realize this isn’t a fixed contract. BigBear.ai must compete with 92 other companies for orders from the $900 million fund. It could end up receiving nothing.
- Stay away from AI and “machine learning” ETFs, too…
For now, AI ETFs are marketing ploys, plain and simple.
AI ETFs are filled with lots of “kind of, but not really AI” stocks.
For example, GameStop Corp. (GME) is listed as a Top 10 holding in the popular AI-Powered Equity (AIEQ) ETF. But how much revenue does GameStop generate from AI? Virtually none.
- Here are my two favorite ways to play the AI boom…
The first way involves investing in the top AI “picks and shovels” stocks.
Ask yourself: Who sells the basics?
That’s the first question I answer when evaluating an investment trend.
For instance, computer chips will continue to be a critical part of the AI boom. So buying the right chip stocks like Nvidia (NVDA) is a smart idea.
You also want to look at the sectors in which AI will make the biggest, most imminent advancements. And the one sector my colleague Chris Wood and I have our eyes on is healthcare.... specifically drug development.
We’re researching one particular company using AI to make the drug development process better, faster, and cheaper. We’ll share all the details in the upcoming issue of our Disruption Investor advisory.
Paid-up subscribers should stay tuned. If you’re not a subscriber, go here to discover more about a risk-free trial, as well as the full story on the “Chip Wars”—another huge investing opportunity in 2023.
Stephen McBride
Chief Analyst, RiskHedge
In the mailbag...
Here’s what a fellow reader had to say about the current state of Apple:
I do agree with your concerns on Apple overall—they haven’t had a market-disrupting innovation since Steve passed. The last one was the Apple Watch, and even that had his fingerprints on it. Tim is a great operator, able to generate lots of profits. But the clock is ticking, and they won’t be able to sustain the semi-lofty P/E much longer. —John
Another reader weighed in on Apple’s highly anticipated AR glasses:
People are so dependent upon their iPhones. I can’t see them being replaced by VR/AR headsets. The headsets will quickly find a role in gaming and in certain industrial applications, particularly in controlling remote machinery. After a few years of development, surgeons will be able to use them for remotely controlled surgery and for other medical applications. The military will also find plenty of uses. However, I suspect the convenience of iPhones will dominate for everyday use until a device can tap directly into brain waves to control all the apps currently running on iPhones. —David
Finally, Richard wrote in about Stephen’s recent magazine cover indicator:
I remember two things [The Economist] mentioned, one of which was major. They ran a leader about the subprime risk in 2006, and I’ll never forget what they pointed out. The Chinese stock market (in 2015?) was getting too hot—a short at this point would have been excellent. It dropped like a stone in the following months. I’ve been reading their headlines about crypto, and I’ve stayed in. —Richard
We appreciate all your feedback. If there are any other topics you’d like Stephen to cover, write in at stephen@riskhedge.com.
