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AI Investment Hype: Wall Street Warns of Timing Mismatch While Highlighting Potential Winners in 2023


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Excitement Around Artificial Intelligence and its Impact on the Stock Market

The buzz surrounding artificial intelligence (AI) has attracted the attention of investors who are eager to capitalize on its potential in 2023. However, not everyone in the financial world shares the same level of enthusiasm. HSBC analyst Stephen Bersey, in a note to clients, cautions against overestimating the timing of when AI software product revenues will gain significant traction.

The Market’s Enthusiasm and Wall Street’s Perspective

Despite the cautious approach taken by some, Wall Street and the investing community have been hyping up shares of AI-focused companies lately. This technology has the potential to revolutionize operations across various industries and expand companies’ total addressable markets, leading to a boost in technology stocks and a positive impact on the tech-heavy Nasdaq Composite.

The Conservative View on AI’s Short-Term Prospects

Bersey acknowledges the value of AI as a tool to enhance software solutions. However, due to uncertainties surrounding investments and the implementation of these tools in the short term, HSBC takes a more conservative stance. While early AI products and deployments are expected, Bersey believes that broad monetization of AI’s true potential is still a few years away.

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Favorable Outlook for Certain Companies

Despite the cautious approach, Bersey identifies ten companies, including six with a buy rating, that are well positioned for AI’s future. Snowflake, with its data warehousing business for deploying large sets of data, is considered a strong contender in the AI space. Oracle, with its cloud-based enterprise software segments, is also expected to benefit from the increasing need for automating business needs.

Short-Term Macro Trends and Potential Hedge

While the full impact of AI may take longer to materialize, Bersey identifies some shorter-term macro trends that could benefit the sector. These include increased cloud demand and digital transformation, accelerated by the pandemic. These themes could serve as a potential hedge against a challenging macro and demand environment. Additionally, the software industry’s productivity-enhancing capabilities can help companies stabilize ongoing operations in the face of workforce deficits caused by cost-cutting measures.

Overall, the excitement surrounding AI is undeniable, but it’s important to exercise caution when evaluating its short-term prospects. While the technology holds immense potential, its widespread monetization may still be a few years away.

Source: Visegrad Info 24’s Michael Bloom contributed reporting.

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