"Investor enthusiasm for artificial intelligence has gripped the financial markets and shows no signs of loosening its hold." says Chris Buchbinder, Equity Portfolio Manager at Capital Group.
"Semiconductor giant NVIDIA, the leading maker of AI chips, has seen its stock soar 150% in the first half of the year, boosting the company’s market value to $3 trillion and briefly making it the largest company in the world. Tech giants Microsoft, Amazon and Broadcom, among the most visible participants in the AI build-out, have also seen their shares rally.
With its potential to turbocharge productivity across the economy, generative AI clearly is a critical concept for us all to understand, not only from the perspective of how we live our lives and operate our businesses but also from an investing perspective.
As much as I believe in AI’s long-term potential, I’ve learned to be skeptical when stocks run this far, this fast. I was an analyst covering telecom companies in the late 1990s during the tech and telecom boom. I remember seeing the tremendous excitement over the internet’s potential to transform the economy. Unfortunately, there was a disconnect between that immediate investor enthusiasm and the real economic benefits that ensued years later.
This was an important lesson for me. The internet has since had a major impact on economic activity, but the returns didn't show up right away — and investors became impatient.
Here are four risks I am thinking about as I consider AI-related investments in my portfolios."