Are investors and Big Tech fuelling a ChatGPT-driven AI bubble?

Share prices are skyrocketing on ChatGPT deals, with Buzzfeed’s soaring 200% last week. Big tech is embracing AI, with Alphabet releasing its own LaMDA model soon and Meta embedding AI deeper into its social media business. Investors are excited, but analysts are wary. Are there signs reminiscent of past bubbles?

- Buzzfeed’s share price surged 200% last week after announcing it will use ChatGPT for its content creation.

-Bank of America analysts warned Buzzfeed’s AI integration will not be as profitable as investors think.

- Meta said it will integrate AI further in its social media business and Alphabet announced its ChatGPT competitor LaMDA will release to the public soon.

The ChatGPT hype pumping AI

Merely two months after its launch, OpenAI’s chatbot that has taken the world by storm crossed the 100 million mark for monthly active users in January, growing at a historically unprecedented rate for a consumer application, a UBS study found. The next-gen technology is revolutionising artificial intelligence, creating ripples across industries as new use cases for the chatbot are explored.

But while Wall Street feels bullish about the sector, a noticeable pattern is emerging. Investors and big tech seem to be fuelling a new bubble in AI financing, with company share prices shooting up on announcing plans to implement AI or ChatGPT-related technology.

Shares of software maker Versus Systems Inc. [VS] skyrocketed as much as 447% during trading on 1 February as the company announced a deal to bring its online audience engagement technology to AI fintech Resolve Debt Inc.

Opto reported earlier that Microsoft Inc. [MSFT]invested $10bn into OpenAI’s ChatGPT, and semiconductor stocks are now surging on their potential to provide computing power for ChatGPT functions.

AI in content creation

Buzzfeed Inc. [BZFD]’s stock surged 200% the previous week after announcing it will integrate OpenAI’s technology into its core business to enhance its content creation, editorial and business operations. ChatGPT has proven capable of composing considerably sophisticated copy and prose, and the digital publisher said it would use the tool to create unique quizzes and personalise some content.

Another driver of the stock surge was the announcement of a recent approximately $10 million deal with Meta Platforms Inc. [META] to bring more content creators to Facebook and Instagram.

Analysts, however, are cautious of the frenzy. Having ChatGPT write Buzzfeed articles might reduce some costs for the company but will not prove as profitable as investors believe, Bank of America said in a note, maintaining its ‘underperform’ rating on the stock.

Buzzfeed’s stock surge sounds alarm bells reminiscent of a craze that sent its shares soaring five years ago after the company announced a potential partnership or entry into the crypto and blockchain space, Bloomberg observed.

Big tech embraces AI as the way forward

Meta and Alphabet Inc. [GOOG] both pledged to “focus on AI” in reporting their earnings last week.

Meta CEO Mark Zuckerburg is shifting his attention from the metaverse to refocus on implementing AI more extensively in Meta’s social media business and said in the earnings call that Instagram’s AI-discovery engine helped double plays of Reels, its short-form video competitor to TikTok, in the last six months.

Along with announcing a $40bn share buyback, Meta’s stock jumped 20% in after-hours trading on 1 February.

Meanwhile, Alphabet CEO Sundar Pichai said Google is releasing its ChatGPT rival to the public “in the coming weeks and months.” The AI-based LaMDA language model would serve as “a companion to search.”

The AI trend is catching on globally. Elsewhere, China’s Baidu Inc. [HK.9888] hopped on the bandwagon with an AI chatbot of its own, planning to combine it with its primary search engine in March, sources told the Wall Street Journal.

Funds in focus: WisdomTree Artificial Intelligence UCITS ETF

Several thematic ETFs provide exposure to the trending AI sector. The WisdomTree Artificial Intelligence UCITS ETF [WTAI] includes a range of companies from SaaS to semiconductor stocks, including chipmaker Nvidia [NVDA] in its top ten holdings. The fund was up 25.31% in the last month.

The ALPS Disruptive Technologies ETF [DTEC] offers broad and global exposure to companies touching on different aspects of tech and AI, including IoT, cloud computing and cybersecurity. The fund was up 12.14% in the last month and flat over the last six months.