Initial Thoughts

Chat GPT has created significant excitement surrounding AI, causing associated stocks to skyrocket. Initially, I dismissed this as a typical buzzword bubble. However, earnings from Nvidia (NVDA) and Broadcom (AVGO) have led me to question my skepticism.

Ambitious Statements From Conservative Management

Jensen Huang, CEO of NVDA, remarked that AI is at an inflection point. NVDA’s upward guidance implies AI will soon have a material, additive effect on earnings as evolving use-cases expedite enterprise demand for the technology. Huang, renowned for his industry vision, is not known to unduly promote his company’s prospects. Therefore, his apparent endorsement carries considerable weight. 

“AI is at an inflection point, setting up for broad adoption reaching into every industry… From startups to major enterprises, we are seeing accelerated interest in the versatility and capabilities of generative AI.”

Jenson Huang; February 22nd, 2023

AVGO raised its forecast due to “exponential demand” in AI. CEO Hock Tan expects their AI-hyperscaler customer segment to increase spend on the hardware required to run AI applications. AVGO’s management has a reputation for under promising and over delivering. This kind of confidence from this kind of management team is a significant indicator that the AI euphoria may be more than hype.

“With the expected exponential demand from our hyperscale customers, we forecast that this could grow to well over $800 million in 2023. We anticipate this trend will continue to accelerate and mindful that we need even more higher performance networks in the future.”

Hock Tan; March 2nd, 2023

My Experience with Chat GPT

To better develop my own opinion on the technology, I have been using Chat GPT to revise and proofread my articles over the past two weeks, including this one. 

My interactions with Chat GPT were as such: I would give Chat GPT segments from my articles and instruct it to proofread and summarize any recommended revisions.

While it correctly revised my writing, it often incorrectly described the changes. For example, it would correct a misspelling but claim to have capitalized the first letter for conformity with capitalization standards. However, things got interesting when I questioned the inaccuracies within the summaries. Chat GPT’s responses convinced me that it was capable of learning. It acknowledged the error in the summary, provided a correct summary of the change, and apologized for any confusion it may have caused. As we continued our sessions, I noticed that Chat GPT adapted its mannerisms to better match my conversational style, presumably due to my writing’s focus on financial markets.

In my opinion, although Chat GPT is undoubtedly a step ahead of any other chatbot I’ve interacted with, it doesn’t quite live up to the media hype. I have heard some AI prognosticators compare Chat GPT to the revolutionary impact of the iPhone on cellular technology. I remember when I made the jump from a Motorola Razr to the original iPhone. This is not that. 

While it’s possible that history may one day revere Chat GPT as it does the iPhone, AI will need to make significant improvements in reliability and usability. As it stands, I still feel the need to double-check Chat GPT’s work, which implies the technology has yet to earn my trust or the public’s. This is in stark contrast to the iPhone, which was embraced from the onset. Until AI technology gains that trust, comparisons to the iPhone remain hyperbole. In the meantime, Chat GPT is a useful tool that saves time, and I will continue to use it in my writing. The potential is undeniable, but I am slightly less optimistic on the adoption timeline.

AI and Investing

AI can be part of an investment thesis but should not be the investment thesis. 

In my view, advancements in AI are another reason to be optimistic on the NVDAs and AVGOs of the world, but it is not a cause to immediately buy into those stocks or pursue an AI pure-play years away profitability.   

Regarding the traditional internet search and advertising industry, I believe Chat GPT-esque applications will evolve into a disruptive threat. Alphabet’s (GOOG) multi-year investment in Bard, an AI application similar to Chat GPT, is an admission of this threat. While I feel it is too early to price-in this threat, it did not stop the market from making an attempt in GOOG shares.

In my estimation, we are years away, not quarters, from AI stealing meaningful market share from incumbents. Furthermore, I do not believe there is an accurate way to estimate the monetary value of stolen market share or determine the beneficiaries, especially as incumbents adopt the new technology rather than disregard it. In conclusion, I do not view AI as an immediate threat to internet search and advertising. If you own companies in the sector, AI has demonstrated itself to be a variable worth monitoring; nevertheless, hitting the sell button solely due to AI would be premature the same way hitting the buy button on potential beneficiaries would.