Investing in AI: how to avoid the hype
LONDON, May 26(Reuters) – Experienced tech investors are hunting for undervalued opportunities in an over-valued space.
At stake is how best to invest in the potential of Artificial Intelligence (AI), which took a leap forward in November when Microsoft-backed OpenAI released its ChatGPT bot, without buying into a bubble.
Shares in Nvidia (NVDA.O), which makes computer chips that train AI systems, have almost doubled since ChatGPT’s launch. The company’s stock market value at roughly $940 billion is more than double that of Europe’s Nestle (NESN.S). Nvidia surged some 25% on Thursday alone after forecasting a sales jump.
Shares in loss-making AI software company C3.AI, which grabbed the stock ticker , have risen 149% this year and Palantir Technologies (PLTR.N), which has launched its own AI platform, is up 91% year-to-date.
Investors are chasing exposure to generative AI, the technology run by ChatGPT that learns from analysing vast datasets to generate text, images and computer code. Businesses are trying to use generative AI to speed up video editing, recruitment and even legal work.
Consultancy PwC sees AI-related productivity savings and investments generating $15.7 trillion worth of global economic output by 2030, almost equivalent to the gross domestic product of China.
The question for investors is whether to jump on the AI train now, or exercise caution, especially given mounting concern amongst regulators about the technology’s potentially disruptive impact.
“There are clearly going to be winners in all this,” said Niall O’Sullivan, chief investment officer of multi-asset for EMEA, at Neuberger Berman. “It’s just that that’s very hard to be true for the entire market.”
Instead of backing hot start-ups or rushing into highly valued AI-themed businesses that might fail, seasoned investors are taking a lateral view to back already proven technology companies that might benefit from the longer-term trend.
“It’s going to be as transformative as the internet, as the mobile internet, as the mainframe computer was,” said Alison Porter, a tech fund manager at Janus Henderson, whose funds have positions in Nvidia, with Microsoft as their largest holding.
However, Porter also cautions that “we are still very early on the use cases for AI.”
She favours big tech groups like Microsoft (MSFT.O) and Alphabet (GOOGL.O) because they have “strong balance sheets”, that make them “able to invest in many different technology advances”, including their recent focus on AI.
BEWARE, THE HYPE
Dizzying valuations have made some investors wary of the technology hype cycle. This concept, popularised by consultancy Gartner, starts with a trigger, such as the launch of ChatGPT, followed by inflated expectations and then disillusionment. Even if a technology moves to mass adoption, many early stage innovators can fail along the way.
“There’s a question about where we are in that curve with AI, where the hype is so visible,” said Mark Hawtin, investment director at GAM Investments. “There are ways to get exposure to the (AI) theme without picking something that is highly valued.”
Janus’ Porter recommended backing proven companies that may be “big beneficiaries in terms of providing infrastructure,” for future trends in generative AI that, as of now, are unclear.
GAM’s Hawtin said he has also hunted out companies that provide the “picks and shovels,” necessary for enabling new AI technology.
For example, AI systems require huge volumes of data to analyse and learn from, but just 1% of global data is currently being captured, stored and used, according to Bank of America.
Hawtin’s funds hold Seagate Technology (STX.O), which makes hard drives and data storage products, and chipmaker Marvell Technology for this reason, he said.
Jon Guinness, tech portfolio manager at Fidelity International, said management consultancy Accenture is in his portfolio because as businesses consider how to use AI, “I strongly think you call in the experts.”
STICKING TO BIG TECH
Trevor Greetham, head of multi-asset at Royal London Investment Management, said he was “overweight” in dominant tech stocks in part because AI supported their valuations, but he cautioned against AI-themed stocks.
“There will be an awful lot of losing lottery tickets,” he said, recalling the dotcom crash of the early 2000s.
Also sticking with big tech, Fidelity’s Guinness said his funds hold Amazon, partly because of its efforts to make AI less expensive for businesses. Amazon’s Bedrock service, for example, lets companies customise generative AI models rather than invest in developing them themselves.
“The big benefits of AI,” Janus’ Porter said, “are going to happen over the long term.”
“Investors want to invest in AI now and they expect things to happen now,” she added. “But we would never blindly buy into AI and we don’t do things at any price.”
Our Standards: The Thomson Reuters Trust Principles.
HackCapital launches investment platform competitor to Odin and Vauban – TechCrunch
Much in the way that AngelList and CircleUp have helped U.S. startups with angel investing, HackCapital wants to do the same for Europe’s impact solution-focused startups.
Co-founders and industry angel investors, Arman Anatürk, Camille Bossel and Emilie Dellecker launched the Switzerland-based entity out of stealth Tuesday to join similar groups, like Vauban, Odin and Roundtable, in helping founders, fund managers and syndicates in the climate tech industry raise capital from their networks for their own raises.
HackCapital is the fundraising and financing arm of Hack Group, the creators of the food tech community FoodHack and HackSummit. It provides a way for startups, funds and syndicates to use the HackCapital platform to launch an investment vehicle and pool capital from multiple investors in their network into the funding round, said Anatürk, co-founder and CEO of HackCapital, via email.
HackCapital manages the legal and administrative services behind these pooling mechanisms via a fully digitized platform that makes issuing and investing easier and more affordable.
To date, over 30 funds and startups have used the infrastructure to roll up investors into their rounds, including Vienna-based Arkeon and Canada-based New School Foods, Anatürk said.
Where Anatürk said HackCapital is doing something different is that it is using a securitization structure, which centralizes the administration to bypass the needs of traditional special purchase vehicles, which limits the number of investors.
“HackCapital’s infrastructure is specifically designed for liquidity and secondaries,” Anatürk said. “We believe that the private markets will play a critical role in solving climate and health in the next decades, but the lack of liquidity is one of the main factors that prevents more capital flowing towards meaningful innovation and impact, especially in deep-tech fields, where the innovation cycles take longer than the typical 10 years fund return.”
Twitter may be worth one-third what Musk paid for it last fall as Fidelity marks down investment – ABC News
Twitter may now be worth one-third of what Elon Musk paid for the social media platform just seven months ago
Twitter may now be worth one-third of what Elon Musk paid for the social media platform just seven months ago.
Financial services company Fidelity has reduced the market value of its equity stake in Twitter for a third time, now putting it at $6.55 billion. That’s down from the nearly $20 billion Fidelity valued its stake at in October.
It is unclear how Fidelity came up with its valuation figures, but as a public company it’s required to provide investors with updates on its holdings. Because Twitter is a private company now called X Holdings Corp., information about its finances can’t be verified.
Musk took control of Twitter in October, after a protracted legal battle and months of uncertainty. The CEO of Tesla, who also owns SpaceX, bought Twitter for $44 billion.
The billionaire financed the purchase with funds including loans from a group of banks. Musk has said the $44 billion price tag for Twitter was too high but that the company had great potential.
By April Musk was telling the BBC that running Twitter has been “ quite painful ” but that the social media company is now roughly breaking even after he acquired it late last year. Musk predicted at the time that Twitter could become “cash flow positive” in the current quarter “if current trends continue.”
Paramount stock rises another 6% as investors cheer Loop Capital upgrade, new investment deal
Paramount Global (PARA) closed Tuesday’s trading session more than 6% higher after Loop Capital upgraded the stock late last week, suggesting financial pressures surrounding the company will force it to find a buyer.
Loop Capital upgraded shares to Hold from Sell but reiterated its price target of $14 a share with analyst Alan Gould telling investors, “We no longer believe the downside is that much greater than the upside.”
“While we still believe a turnaround of PARA will be a challenge, investors’ perception of the company could change with a motivated seller, clever bankers, and Berkshire’s purse strings,” he said.
“The bull case is that the financial pressure will force PARA to find a buyer and shareholders will achieve private market value. The bear case is that there are no buyers for the cable assets, the streaming business is a work-in-process, and Shari Redstone will not sell just the studio, the only asset that would have multiple highly interested buyers,” Gould added.
Shari Redstone currently serves as the non-executive chairwoman of Paramount Global, in addition to president of her family’s holding company, National Amusements (NAI), which controls the company through its class A shares.
Paramount closed Friday’s trading session up 6% after BDT Capital Partners, an affiliate of BDT & MSD Partners, funded a $125 million preferred equity investment in National Amusements.
The investment will help NAI pay down its revolving loan and recent term loan borrowings, according to a press release. Paramount has recently battled layoffs, business restructurings, and a dividend cut that sent the stock plummeting nearly 30%.
“Our expanded partnership with BDT & MSD reflects our strong belief in Paramount’s ability to deliver value to all shareholders,” Redstone said in the release.
“NAI has conviction in Paramount’s strategy and execution, and we remain committed to supporting Paramount as it takes the necessary steps to build on its success and capitalize on the strategic opportunities in our industry,” she continued.
Paramount has long been viewed as a potential acquisition target due to its small size relative to competitors. The company boasts a current market cap of about $10 billion, compared to Disney’s (DIS) $161 billion and Netflix’s (NFLX) $176 billion.
Paramount CEO Bob Bakish hinted more media M&A was on the horizon while speaking at a UBS media conference late last year.
“Consolidation has been the rule in business for a long time, certainly been the rule in media,” he said at the time. “So, it’s hard for me to bet on anything other than consolidation will happen in the future.”
In February, shortly following the announcement that Paramount would be folding Showtime into Paramount+, The Wall Street Journal revealed the company had turned down a more than $3 billion offer from executive David Nevins to buy Showtime.
Nevins’ proposal was one of many offers the company had received for Showtime over the past several years, the Journal said. The network, which is home to popular shows like “Billions” and “Yellowjackets,” was said to be a key driver in unlocking value for the media giant.
In addition to the Showtime offer, the company has tip-toed around recent reports of a potential sale of the company’s BET Media Group, which includes cable channels BET and VH1, after producer Tyler Perry and media mogul Byron Allen reportedly expressed interest in purchasing a majority stake.
Warren Buffett’s Berkshire Hathaway (BRK-B) boosted its stake in Paramount Global in the fourth quarter of 2022, purchasing an additional 2.4 million shares worth more than $40 million, according to a regulatory filing released on February 14, pushing its stake in the company north of 93 million shares.
Another Buffett connection lies in BDT & MSD Partners’ Chairman and Co-CEO Byron Trott — long known as a trusted advisor of Buffett.
“Paramount has an incredible legacy, underpinned by its industry-leading content and media assets. We believe strongly in the value creation opportunities ahead for the company and its shareholders,” Trott said in Friday’s release.
Still, not everyone is convinced a sale is on the horizon — at least not right away.
Wells Fargo analyst Steve Cahall suggested on Tuesday that Redstone’s “conviction” in Paramount’s strategy implies “a break up of the company is not likely anytime soon.”
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at firstname.lastname@example.org
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