- The artificial intelligence hype in the stock market is beginning to cool down, according to Goldman Sachs.
- The proportion of S&P 500 companies mentioning “AI” during their quarterly earnings call declined in the third-quarter.
- “Likewise, Google search volumes for AI rose sharply in early 2023 but appear to have stabilized in recent weeks,” Goldman Sachs said.
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The chart shows that the proportion of S&P 500 companies mentioning “AI” during their quarterly earnings call dropped to 29% in the third-quarter from a peak of 35% in the second-quarter.
Mentions of “AI” during quarterly earnings call hovered around 10% at the end of 2022, and was supercharged by the debut of OpenAI’s ChatGPT in November 2022. But enthusiasm for the new technology appears to be taking a breather, at least for now, according to Goldman Sachs.
“Likewise, Google search volumes for AI rose sharply in early 2023 but appear to have stabilized in recent weeks,” Goldman Sachs said.
If AI enthusiasm among companies and investors is indeed reaching an inflection point, that could be a risk for the mega-cap tech stocks that have made a big pivot into the space, like Microsoft and Alphabet.
“The emergence of ChatGPT, and AI more broadly, benefited the largest stocks who were either directly or indirectly involved in the development of the technology,” Goldman Sachs said.
The moderating hype in AI comes at a time when hedge funds have piled into mega-cap tech stocks this year. That high ownership level represents another risk for these names, which have significantly outperformed the broader stock market this year, as it represents a big group of potential sellers that may want to book profits in the event enthusiasm for AI wanes further.
“At the start of 2023 US single stock hedge fund net exposures to the mega-cap tech stocks ranked in just the 12th percentile vs. history since 2016. Today, positions rank in the 99th percentile since 2016,” Goldman Sachs explained.
Despite the slowdown in mentions of AI on quarterly earnings calls, Wedbush analyst Dan Ives sees plenty of runway ahead for the new technology to generate more business for tech companies like Microsoft.
“It has become crystal clear to us that the monetization opportunities around deploying AI and ChatGPT in the cloud is a transformational opportunity across the industry with [Microsoft] in the drivers seat,” Ives said in a recent note, telling clients that shares of the tech giant could reach new highs next year on AI growth.