“Generative AI” is all the rage these days…
For starters, Microsoft (MSFT) is dumping a lot of money into the space.
The tech giant invested $1 billion into industry leader OpenAI in 2019. Two years later, it held another investment round. And last month, Microsoft poured in $10 billion more.
Microsoft is talking up efforts to bring this technology to its Bing search engine. And market bulls think OpenAI can help it chip away at Alphabet’s (GOOGL) massive lead in the search-engine world.
That’s just the beginning, too…
In short, this artificial intelligence (“AI”) can create new images, text, audio, video, and more. That could be a lot of fun for computer artists, poets, music composers, and others.
But as I’ll show you today, it’s an evolving technology. And the Power Gauge sees that…
OpenAI’s ChatGPT tool could be revolutionary. So last week, I took it for a spin…
At first, I could see why this technology impresses casual observers. It gives clearly written, seemingly comprehensive answers to factual questions.
But as I dug deeper into ChatGPT, I realized it’s not flawless…
You see, it can’t give opinions. And it misses details that a human expert might offer.
For example, I asked ChatGPT about the disadvantages to condominium living…
It was OK with the basics. But it missed how hard it can be to deal with residents who don’t pay. (Condos deal with property owners and deeds, not leases and tenancies.)
Next, I asked ChatGPT to describe the stock market. Then, I asked the tool to do it using Shakespearian language. And finally, I asked for a Chaucer-like description.
The first answer made sense. But the second answer wasn’t Shakespearean. It read the way someone who never read Shakespeare imagines it would be. And the Chaucer version looked pseudo-Shakespearian.
After that, I fiddled some more with ChatGPT. That’s when it hit me…
I’ve seen less-fancy versions of this stuff for decades.
These AI databases are a lot like the stock screeners I’ve used since the 1980s. And legal-research platforms like Lexis have long accepted plain-English questions as well.
Now, stock screeners and legal platforms have become much more powerful over the decades. So we can expect a lot of progress with generative AI in the coming years.
But that makes me wonder…
Where are the profits? And when will we start seeing them?
For example, C3.ai (AI) is one of the only publicly traded stocks in the space. It’s a pure-play enterprise AI company. And most significantly for us, it’s burning through cash…
The company’s annual cash from operations has plunged over the past few years. This metric has fallen from around negative $35 million in 2019 (the first year C3.ai reported publicly) to roughly negative $160 million over the trailing 12 months.
C3.ai’s losses make it a “basement kid” that needs a short leash. And the Power Gauge realizes that. Despite the potential of this technology, it’s “neutral” on the stock today.
For what it’s worth, the Power Gauge is also “neutral” on Microsoft. Given its vast reach, the company comes with much lower risk. That’s likely the best way to play this trend…
Look for situations where larger companies like Microsoft are incubating generative AI.
But for now, the bottom line is simple…
Like any “next big thing” in the world, it’s best to let the numbers and the Power Gauge guide us through the minefield. And today, it’s best to take a wait-and-see approach.
Good investing,
Marc Gerstein
