Raoul Pal says AI could become the 'biggest bubble of all time': Morning Brief

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Excerpt:

"The AI genie has escaped the bottle with a velocity not matched in modern human history, and investors are starting to take notice. Wednesday, C3.ai (AI) and SoundHound AI (SOUN) added to their 2023 gains — each up about 120% this year.

Despite the outperformance of these thematic AI names, the industry is still relatively small, leaving many investors wondering how to invest. Already, one veteran macro trader is peering far beyond the hype, warning that investment in AI could be the "biggest bubble of all time."

Raoul Pal, the CEO and founder of Real Vision Group, recently spoke to Yahoo Finance Uncut about the tremendous growth in artificial intelligence as well as the knock-on effects of mass adoption. He believes that the number of applications for AI is set to explode, and we are not yet ready to deal with the implications of this exponential growth.

Pal argues that hand-in-hand with the growth story, AI will usher in a global deflationary shock — one of the largest the world has ever seen.

"I think it might be bigger [by] orders of magnitude than China joining the [World Trade Organization]. I can't express how powerful what is happening is," he said, referring to the 2001 WTO decision that paved the way for China to become a manufacturing and trade juggernaut — ushering in an era of cheap imported goods for Americans.

Similarly, experts forecast that AI will replace many workers while lowering the cost of goods and services for consumers.

But despite the lofty visions of industry insiders and investors looking for the next big thing, the technology is still relatively young, with few investing opportunities at scale. Guardforce AI (GFAI), and BigBear.ai Holdings (BBAI) are pure-play names attracting attention. But even the largest among them — the aforementioned enterprise-software leader, C3.ai — only has a market cap of $2.5 billion.

 

Artificial Intelligence-themed stocks and funds attracting attention (not comprehensive)

In the universe of funds, several thematic ETFs include AI — but mostly in addition to the larger robotics theme. The lone exception appears to be the WisdomTree AI and Innovation Fund (WTAI). (Though, a smartly-named ETF with the ticker CHAT recently filed for registration in the U.S.)

But investors needn't chase illiquid small-cap stocks to invest in AI.

"[F]or the average person, right now, the easiest two ways [to invest in AI] are Microsoft and Google," says Pal, adding that both companies are pivoting their entire business models to embrace AI.

Microsoft (MSFT) may have an early-mover advantage with ChatGPT. But behind the scenes, Alphabet's Google (GOOGL, GOOG) has been investing in other complementary technologies, which should become major investment opportunities down the road, says Pal.

"[D]on't forget — Google's got robotics. Google's got EV. Google's got self driving ... [T]hey've got quantum computing — all in their Google X Labs, which we don't even know about. It's all behind the curtain."

As users adopt these new technologies, the companies that offer them at scale should benefit from network effects — a self-reinforcing phenomenon that exponentially increases their network activity. Semiconductors also fall into this category, says Pal. Companies like Nvidia (NVDA) are key to processing AI data, and they are likely to benefit as the technology becomes more widespread.

There will be more high-profile AI failures — some funny, and some scary, as the technology worms its way into our everyday lives and mission-critical systems. But the deck is stacked in favor of exponential growth.

While it may seem premature to worry about a bubble in any asset when investors are still reeling front last year's drubbing, Pal focuses on some of the near-term effects. "If there's ever a reason for the major technology stocks to really have another leg higher, it's on [AI]," he says.

Source and more:

https://finance.yahoo.com/news/raoul-pal-says-ai-could-become-the-biggest-bubble-of-all-time-morning-brief-103046757.html