Since the launch of ChatGPT, the artificial intelligence realm has been considerably booming. ChatGPT had more than 1 million within one week after it was launched on November 30, 2022. Indeed, some sort of euphoria has been growing around artificial intelligence and what it can do. This has got a lot of people interested in it and many investors have been pouring funds into AI stocks. This is because many tech companies and companies related to White-collar professions have been considering incorporating artificial intelligence as part of their work structure to improve efficiency.
AI Market Size from 2021 to 2030
Source: Statista
According to some financial professionals, a $100 billion bubble in artificial intelligence has already formed. According to Next Move Strategy Consulting, the artificial intelligence market is expected to show strong growth in the coming decade. Its value of more than $100 billion is expected to grow twentyfold by 2030, up to nearly $2 trillion. The AI market covers a vast amount of industries; everything from supply chains, marketing, product making, research, analysis, and more are fields that will in some aspect adopt artificial intelligence within their business structures. Chatbots, image-generating AI, and mobile applications are all among the major trends improving artificial intelligence in the coming years.
Many financial experts believe that the AI market is in a bubble. The frequency of bubbles is increasing along with the size to which they get inflate. Increased prevalence seems to be driven by the instantaneous sharing of information at mass scale. 100 years ago, when someone got excited about an idea, they would tell their family and friends about it, if it was a particularly high-conviction idea, perhaps word of mouth would get their entire town excited about it. Yet it would remain a local pocket of excitement. Even some of the most famous bubbles of the past were localized such as the tulip phenomenon. Back then, bubbles were a once or twice-per-century sort of event. 20 years ago, bubbles were a once or twice-per-decade sort of event, The dot-come bubble was followed by the housing bubble beginning in 2005.
Today, bubbles form once or twice a year due to internet communication, in which one piece of information can reach millions of people instantaneously. Even a small percentage of information recipients are induced into excitement which creates an overwhelming amount of interest. If the source of global excitement is a stock or a related group of stocks, it can send trillions of dollars at a singular idea over a short-time period. The result is frequent inflation of bubbles, as we can currently see with the artificial intelligence market.
Shares of enterprise AI platform developer C3.ai (AI 10.24%) have skyrocketed close to 140% so far in 2023. Its market capitalization currently stands at roughly $3 billion. But C3. Ai’s revenue declined 5% year-over-year in its latest quarter and the company remains unprofitable. Nvidia Corporation is another AI stock that has been inflated. Investors have been wildly enthusiastic about the company’s prospects in large part because its graphics processing units are ideally suited for running AI apps. The stock has soared more than 110% year to date. Nvidia’s shares are now trading at 26.5 times sales and 63 times forward earnings.
All bubbles eventually burst, and this could be about to happen with AI stocks. Some traders argue that there is still room for AI stocks to run before the burst happens. C3.ai’s shares currently trade at 9.2 times sales and Nvidia could grow by 5 times over the next ten years with the rising adoption of artificial intelligence. In other words, the AI burst is not so imminent. Nevertheless, it is important for investors to remain wary about the AI market, especially the euphoria that keeps growing.