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The AI revolution is hotter than ever – but investors must be realistic about its timeline
Investors are once again piling on the artificial intelligence trade – but anyone looking for a quick return should think twice.
Nvidia Stock (NVDA) hit an intraday record this week ahead of its 10-for-1 stock split, while new product announcements fueled demand for stocks like AMD (OMG), c3.AI (AI) and Super Micro (SMCI).
Despite Wall Street’s relentless enthusiasm for new technology, a reality check may be in order. I spoke with top business leaders at Bank of America’s global technology conference earlier this week, who warned of impractical expectations.
Nutanix (NTNX) CEO Rajiv Ramaswami told me that while he is excited about the revolutionary technology, “investments in AI have outpaced reality.”
“There has to be a valid business case… to justify the cost of investments in AI. There is a little disconnect between the two now,” Ramaswami said.
Although there are a number of applications for AI — from generating text and video to forecasting demand in supply chains — many technology companies have yet to see tangible returns from their AI investments. However, building AI applications, which require intense computing power, is a difficult task. Dear.
“There are good use cases. I’m not suggesting that there aren’t good use cases. … We just need to make sure they are economically viable,” Ramaswami added.
Meanwhile, Pure Storage (PSTG) founder John Colgrove advised that it is important to maintain a realistic timeline for the expected real-life impact of AI. He warns that expectations are “exaggerated” in the short term.
“AI will be transformative, but it will take a little longer than people think. What they think will happen in the next 10 years will probably take 25 years,” Colgrove said.
“It will happen, but it will take a little longer to build the infrastructure and really get the effects everywhere.”
In this photo illustration, Google’s Gemini AI is seen on a phone on March 18, 2024, in New York City. (Michael M. Santiago/Getty Images) (Michael M. Santiago via Getty Images)
When it comes to startups, enthusiasm has already waned. After a huge increase for several consecutive quarters, the value of the venture capital deal for pre-seed and seed-stage AI startups is starting to decline.
Deal value totaled $122.9 million in the first quarter, down 76% from the peak in the third quarter of 2023, according to the latest data from PitchBook.
The determining factors are issues related to profitability.
For investors trying to navigate the hype around AI, there are still reasons to increase exposure, even with expectations of a “lagging effect,” according to State Street’s Michael Arone.
Arone told Yahoo Finance that investing in the companies that “lay the foundation for massive adoption” is the best way to play with AI. The companies behind data centers, GPUs, software and cloud services are providing the essential tools to support the AI revolution.
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“We really need to move from the possibilities of AI to the practical implications of AI. …And while there is a ‘lag effect’ for companies that incorporate AI technology into their products, the first builders of the infrastructure and foundation are the winners,” advised Arone.
“The winners and losers will become more evident as we move forward,” he added.
Sean Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on business, mergers, activist situations or anything else? Email seanasmith@yahooinc.com.
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