Should clients load up on AI stocks or wait and see?

Survey reveals bullish investor sentiment, and a global wealth advisor says it's the right move

Should clients load up on AI stocks or wait and see?
Steve Randall

The tech world has given investors some mixed signals about artificial intelligence (AI) recently, both hailing its potential and warning of its risks.

But should clients be adding AI-focused stocks to their portfolios or will ignoring them mean missing out on the next big technology revolution?

ChatGPT has made the potential for an AI revolution feel more real, with Microsoft’s $10 billion investment in the OpenAI firm that created the service fuelling opinion that this is not a fad.

A new Pitchbook survey of venture capitalists (VCs) highlights a bullish view from across industries and fund sizes.

Respondents believe that AI will be the largest driver of innovation (31.6%) and growth opportunities (36%) over the next 12 months.

Over two-thirds of poll participants (71%) also think that a new wave of tech unicorns will be created by the growth of generative AI over the next five years.

PitchBook's recent 2023 Generative AI Vertical Snapshot expects the global generative AI market to reach $42.6 billion in 2023.

Warren Buffett’s scepticism

Last week, Warren Buffett and his Berkshire Hathaway CEO Charlie Munger, revealed that they are not convinced that AI is the big deal that many believe.

“I am personally sceptical of some of the hype that is going into artificial intelligence. I think old-fashioned intelligence works pretty well,” Munger noted.

But Nigel Green, CEO of global wealth advisory deVere Group, says that the performance of ‘big tech’ highlights the importance that industry is placing on AI’s potential.

“Most of corporate America clearly think that this is the future,” he said. “The importance of this cannot be overstated considering that just five tech companies have made up two-thirds of the S&P 500’s gains so far this year.”

He added that the clues were in firms’ financial reports, and he notes that AI was one of the big stories of big techs’ earnings season.

“The tech titans are fully aware of the enormous returns that could be secured when AI starts to radically change the way businesses work and consumers live their lives,” Green said. “We fully expect that the volume of chat around AI will ramp up in future earnings seasons.”

On that basis, Green believes that most investors’ portfolios should include AI stocks.

“We expect that companies that have substantial AI interests are likely to benefit from the growth of the industry and this could have potentially significant rewards for early investors,” he added, urging investors to seek professional advice before jumping in. “We believe that AI is the future, and we know from the past that early investors in innovative technologies often reap enormous rewards.”

Capital restraints

If AI firms are relying on VC investment for their growth phase, there could be some challenges following the collapse of Silicon Valley Bank according to the Pitchbook survey.

When asked how VC funding will change over the next 12 months, nearly half of respondents (43%) said they expect either a moderate or strong decrease in VC funding, while 33% said they expect funding levels to remain the same.

Nearly two-thirds of participants (62%) said they believe SVB's failure would contribute to reduced funding over the next year.

That said, most respondents remain somewhat optimistic about fundraising with few adjusting plans. They noted that tech funds are easier to raise relative to generalist funds.