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ChatGPT creates risks and opportunities for investors

Market Comment

13/02/2023 • 4 minute read

The recent launch of chatbot ChatGPT seems to have heralded a new era of artificial intelligence (AI). At this point, it is too early to predict which tech companies will eventually become market leaders in the field of AI. For investors, the rise of innovative chatbots comes both with risks and opportunities.
Last November, US tech lab OpenAI presented its free chatbot ChatGPT, an AI-based chat programme that can produce human-like responses to user requests, varying from stories, explanations and computer codes to poems. It can even generate ideas from scratch, including business strategies, Christmas gift suggestions, blog topics and vacation plans. In response to user requests, ChatGPT provides impressive answers – in fluent English. Although these responses contain sometimes biases and errors, ChatGPT has reached more than 100 million users within two months. For investors, the new era of AI comes with risks but also with opportunities. Recently, shares in companies that are active in the field of AI, including Microsoft, Alphabet and Baidu, showed strong price movements – either upward or downward – in response to AI-related news.

Big Tech jumps on the bandwagon

Prior to the launch of ChatGPT, Microsoft already had a small stake in its developer OpenAI. After the introduction of ChatGPT, Microsoft quickly poured in billions of dollars into the company, increasing its stake in OpenAI to almost 50%. This week, other big technology companies, such as Alphabet and Baidu, announced that they are developing their own chatbots. Investors wonder if this new AI technology will be as disruptive as search engine Google was 20 years ago. Will new players successfully enter the market with innovative AI tools, taking a serious bite out of future earnings of the big tech companies? Or will established big tech firms prove to be the winners of the AI race?

Next step in the secular trend of AI

Although chatbots such as ChatGPT are ground-breaking tools, they fit the secular AI trend that started some years ago. The development of new AI-based applications is driven by three factors which continue to strengthen each other. First, there is an increasing amount of data available. Second, bigger and more complex computer models are made possible by increasing computer power easily available in the cloud. And third, through innovation, AI reaches new levels of sophistication. So-called ‘generative AI’, for instance, has been a leap forward in the development of AI. Generative AI refers to the ability of AI to generate new output based on a vast amount of existing data. ChatGPT is an example of a chatbot generating new content using generative AI.

There is a lot to gain and to lose

The current positions of large tech companies, for instance Google as the most dominant search engine, could be at risk. The ChatGPT chatbot is trained on publicly available data up until 2021. Now that Microsoft is involved, ChatGPT will have much more – and more recent – data at its disposal. Microsoft wants to add the chatbot to its search engine Bing, which could lead to a decline in Google’s popularity. Microsoft also wants to integrate ChatGPT in other applications, such as Office, Teams and its internet browser Edge, which could attract more users. And with the current high popularity of ChatGPT, advertisers would be willing to pay substantial prices to place their ads in the tool.

Acknowledging both the risks and the potential of chatbots such as ChatGPT, Google-parent Alphabet responded quickly by announcing a similar chatbot programme, called Bard. With Alphabet’s vast data-ecosystem (Chrome browser, Google search engine and Android mobile operating system), Bard may have even more data to rely on than ChatGPT. Furthermore, Alphabet’s subsidiary DeepMind has a strong track record in AI. Bard is currently being tested by a select group of users. Early reviews show that, similar to ChatGPT, it still needs to be trained a lot more in order to remove any flaws and biases. In addition, in terms of performance, Bard seems to be a bit weaker than ChatGPT. Although it may be premature to draw firm conclusions from these tests, shares in Alphabet declined in response to the early outcomes this week. In that sense, the Alphabet case could serve as an example: tech companies might need more time to develop cutting-edge chatbots that function properly, with investors running the risk of getting disappointed along the way.

What should investors do?

It is yet too early to predict which company – or companies – will eventually win the AI race. Companies with the most data, the best in-house experts and the deepest pockets to finance it all, are likely to be among the winners. All the big tech platforms tick those boxes. Regulators, however, may step in to counter risks of monopolization and abuse, although such regulatory processes tend to take years.

At this point, we refrain from investment suggestions that are specifically linked to the AI-related developments that we have witnessed in recent months. We do see investment opportunities among the companies that enable such innovations, including chip suppliers, cloud computing companies and cyber security firms. Products and services offered by such companies will be necessary to support the development of AI, regardless of how the race for market leadership in AI will evolve.

Piet Schimmel – Senior Equity Thematic Expert

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