This Article May Get Me Killed
I’ve never been one to back down from controversial subjects.
But today, the words I write here may just get me killed.
Nevertheless, here it goes …
I think artificial intelligence (AI) assistants are stupid.
I think chatbots are ridiculous.
And I think the current investor hype around AI borders on idiotic.
Now, I know our future robot overlords won’t look kindly on those lines. I can already see the smoking husk of my corpse laying on a battlefield. My skull ground to dust by the metallic heel of our oppressors … unless I can somehow sweet talk Bing into falling in love with me instead of some other tech writer.
But despite this possible risk of future death, Terminator-style, I’m willing to voice my warning.
The Death of Solow Paradox
In 2023, investors have turned AI into the latest “meme stock.”
Though, there is a potential real-world financial reason for this.
Back in 1987, the Nobel prize-winning economist, Robert Solow, stated that we can see the computer revolution in every part of our lives … except in the productivity statistics.
That the world embraces technology in every facet, even in industry, but our output really doesn’t reflect these technological advancements.
This is known as the Solow Paradox.
Unfortunately for Solow, his paradox only held true until 1990. That’s when the U.S. entered a multi-decade productivity boom, all thanks to the computer revolution and better semiconductors.
But as we can see, we’re in period of struggling output once again.
That’s why we’ve entered a new era of fascination with AI.
This Time It’s Different?
Don’t worry workers of the world … AI is here to shoulder some of the burden.
In 2023, there is this obsession with using AI to create content, as well as working as autonomous chatbots and personal assistants.
This current round of AI mania began with “art generators” like Midjourney, DALL-E, Craiyon, Night Café and a laundry list of others.
To me, these aren’t anything more than glorified artificial art thieves and plagiarists. The AI steal images from other artists and mash them together to create a new image to fit a prompt. More than likely, you have a friend that has a profile picture created using one of these generators.
And already, (hear that warning bell?) the novelty of these generators has worn off.
But that mainstream fascination then bled onto Wall Street with OpenAI’s ChatGPT, Microsoft’s (MSFT) Bing (with billions plowed into OpenAI), as well as Alphabet’s (GOOGL) Bard, Baidu’s (BIDU) ERNIE and an ever-growing list of others.
That’s created a stampede for anything and everything AI.
Year-to-date, shares of C3.ai (AI) are up more than 113% … shares of SoundHound AI (SOUN) are up more than 205% … and shares of BigBear.ai Holdings (BBAI) are up more than 435%!
And let’s not forget shares of BuzzFeed (BZFD) are up more than 186%.
Why?
Well, most of them have “AI” in their names. That’s really key right now.
And then for BuzzFeed, after slashing its workforce in 2022, the company announced it was going to start using OpenAI’s ChatGPT to create content. Take that Solow’s Paradox!
Of course, the AI mania is being driven further by some companies, like Codeword, who are being more extreme. They’ve hired the world’s first AI interns, Aiden and Aiko. And now there’s this conversation that soon “millions of AI interns” will dot the corporate landscape.
So, is this a period where Solow’s Paradox collapses upon itself once again? Are we about to see a new productivity boom, driving by AI?
Many investors are hoping so, buying up the hype.
But let’s keep our pants on.
There’s still a lot of work to be done here. Let’s wait until we can go a week without a chatbot going on some weird tirade, making a mistake, or companies limiting access to these AI to prevent weird tirades or mistakes.
Sure, many people would love a right-hand AI like J.A.R.V.I.S. to Tony Stark in Iron Man.
But what they’re more likely to get is a glitchy, obsessive Poe to their Takeshi Kovacs a la Altered Carbon.
The reality is: the massive share moves and headlines in 2023 are all part of the classic “hype-and-bust” cycle for AI. This is something we’ve seen multiple times before.
Don’t get sucked in by FOMO. Don’t fall into “buying the dip.”
I know plenty of people are arguing, “But this time is different!” Personally, I don’t buy it. So, tread carefully in the sector.
Look, I’m risking possible future annihilation by the real-world Skynet for speaking out against AI. But heed my warning. You don’t want to be left on the wrong side of the line when this hype turns bust.
Aim high,
Matthew
What to Watch:
It’s only a four-day week, but there are more than 1,000 companies scheduled to report earnings.
Tuesday Earnings After the Closing Bell:
Palo Alto Networks (PANW) – expected move on earnings +/-6.5%. Wall Street wants to see revenue grow 25% to $1.65 billion with earnings of $0.78 per share. Shares have gained on seven straight quarterly reports. But have split the last two fourth quarter reports, averaging a one-day loss of 0.73%.
STAAR Surgical (STAA) – expected move on earnings +/-13.8%. Analysts are looking for $64.2 million in revenue with earnings of $0.05 per share. Shares have risen an average of 5.46% on its last two fourth quarter earnings releases… though it’s been a split, one up/one down.
Wednesday Earnings Before the Market Opens:
Baidu (BIDU) – expected move on earnings +/-6.4%. Wall Street wants to see revenue grow 1.4% to $4.66 billion with earnings of $2.00 per share. Shares have split the last two fourth quarter reports, averaging a one-day gain of 1.68%.
Vipshop Holdings (VIPS) – expected move on earnings +/-11.0%. Analysts are looking for $$.58 billion in revenue with earnings of $0.47 per share. Shares have risen three consecutive earnings reports. They’ve split the last two fourth quarter reports, falling an average of 2.78%. But since 2012, shares of Vipshop have only fallen on fourth quarter earnings three times, average a one-day pop of 6.74% during that span.
2:00 PM ET – FOMC minutes from February 1 meeting released.
© 2023 Matthew Carr
All rights reserved.
This market commentary is opinion and for entertainment purposes only. The views and insights shared by the author are based on his many years of experience covering the markets. But nothing in this email should be considered personalized investment advice. Investments should be made after consulting your financial advisor and after reviewing the financial statements of the company or companies in question.