There are three things investors could have banked on over the last five trading sessions: The stock market would open at 9:30 a.m., the stock market would close at 4 p.m., and speculative AI stocks would see monster levels of volatility.
And who said there was nothing definite in investing?!
Yahoo Finance is zooming in on shares of speculative and buzzy AI names C3.ai, Inc. (AI), SoundHound (SOUN), and BigBear.ai (BBAI), all of which have seen outsized moves in the last five trading sessions. SoundHound shares have surged 26%, BigBear.ai is up 11%, and C3.ai has plunged 24% (in part due to a fresh short-seller attack).
All three names have been virtually pinned to the Yahoo Finance “Trending Ticker” page, too.
By comparison, the more established and fundamentally stronger AI plays such as Microsoft (MSFT) and Nvidia (NVDA) are only down slightly in the past five trading days. Alphabet’s (GOOG, GOOGL) stock is actually up slightly during this span.
So what gives with the head-turning action in the aforementioned speculative AI names (which are underpinned by companies that have no profits)?
Traders point to a few factors.
“In my opinion, it’s the excess liquidity that has been provided by the Fed and other global central banks during the banking crisis. When excess liquidity is pushed into the markets, it initially tends to go into a narrow number of assets … the stocks and assets that have the most momentum. That’s what happened in 2010/11 … and after the liquidity injections in 2020,” Miller Tabak chief markets strategist Matt Maley tells me via email.
Sevens Report Research founder Tom Essaye tells me the fierce moves have been ignited by fears of industry regulation raining down on a topic that exploded into the minds of investors in March amid hype around ChatGPT.
“Basically I think there’s some regulation concerns, not so much in the governmental sense yet, but perhaps industry regulations. That’s just injecting some fundamental uncertainty into the whole space, and given the valuations and popularity of the AI names, it’s resulting in some wild gyrations!” Essaye says.
The past week alone has put a spotlight on Essaye’s view.
“Tech companies have a responsibility, in my view, to make sure their products are safe before making them public,” President Joe Biden said at a science and tech conference on Wednesday.
“It remains to be seen. It could be,” the president replied when asked if AI was dangerous.
Meantime, Tesla CEO Elon Musk and more than 1,000 tech leaders recently signed a letter calling for a six-month pause on developing powerful AI platforms. This came just days after Microsoft founder Bill Gates waxed poetic on the future potential of AI.
While development of next-generation AI is in full swing and the broad swath of sector plays likely to remain of interest with investors, Miller Tabak’s Maley reminds everyone that speculative names are just that — speculative, and littered with risk.
So proceed with caution into names like C3.ai, SoundHound, and BigBear.ai.
The rally “could certainly have legs, but at some point, valuations matter. Therefore, these stocks will be subject to some very serious declines as we move through 2023,” Maley said.