What happened

Stocks were moderately higher Tuesday, as investors contemplated the ongoing banking crisis and what it means for the broader market in the days and weeks to come. Market watchers temporarily shifted their focus to advances in artificial intelligence (AI) and how those developments might represent long-term opportunities for investors.

With that as a backdrop, Alphabet (GOOGL -1.21%) (GOOG -1.30%) rose 3.1%, Palantir Technologies (PLTR 3.20%) rose 3.5%, and C3.ai (AI -1.71%) jumped 5.7% as of 1:47 p.m. ET on Tuesday.

It appears an announcement by Alphabet has stoked interest in the AI sector, fueling demand for these stocks.

A person siting at a desk looking at graphs on multiple device monitors.

Image source: Getty Images.

So what

In a blog post that dropped today, Google announced it was expanding early access to Bard, its generative AI-fueled chatbot, allowing the public to experiment and provide feedback regarding their experiences. The company noted Bard was an "early experiment from Google that lets you collaborate with generative AI."

The technology will be available in the U.S. and U.K., expanding to other countries and languages over time. The company noted the limitations of this early-stage project, writing: "large language models will not always get it right. Feedback from a wide range of experts and users will help Bard improve." 

There's been a surge in public interest in recent developments in AI. OpenAI -- backed by a sizable investment from Microsoft (MSFT -0.45%) -- debuted its ChatGPT in November, which catalyzed public interest in advances in natural-language models and the increasing ability of chatbots endowed with the uncanny ability to talk and write like humans. While there is still a long way to go, the growing public interest in the field has lit a fire under other technology companies, sparking something of an AI arms race.

Another development over the past week has renewed public curiosity and investor interest alike in the path forward for AI. OpenAI announced the release of GPT-4, which marks the next generation of its groundbreaking technology. The AI-powered system can pass a number of standardized tests, build rudimentary websites, and describe actions taking place in images. It can also analyze these images and predict outcomes based on what it "sees." 

It's easy to understand the public fascination with advances in AI, and while it's fun to experiment with these early versions, it's also important to note that these nascent models still have a long way to go before they're ready for prime time.

When Bard was first introduced to the public in early February, the chatbot made a factual error that marred its debut. While this was unfortunate, it highlights the limitations of chatbots, which can't always distinguish fact from fiction and are only as reliable as the algorithms used to train them. 

Now what

There are obviously other facets to the AI employed by these businesses, which go beyond the recent enthusiasm surrounding chatbots:

  • Alphabet algorithms form the foundation for its industry-leading search, backstopping its ad tech business, and is infused into everything the company does.
  • Palantir Technologies is the AI platform of choice for the U.S. government and many of its allies, providing them with the ability to detect patterns within massive data sets. It provides similar capabilities to enterprise-level businesses, analyzing data pulled from various silos.
  • C3.ai provides a platform that allows customers to design, develop, and deploy enterprise AI applications.

So how should investors react in this current environment? The market has been a nonstop thrill ride over the past couple of years, reaching new heights before plunging to depths not seen in more than a decade. This unrelenting market turbulence has sapped the conviction of even the most experienced investors, many of whom are searching for stocks that represent "a sure thing."

Both Palantir and C3.ai have relatively short track records, having both gone public in 2020. Furthermore, they aren't cheap in terms of traditional valuation metrics, each selling for more than 9 times trailing-12-month sales, when an optimal price-to-sales ratio is generally believed to be between 1 and 2.

While no company comes with guarantees, Alphabet is likely as close as you can get to a no-brainer. The company is not only the undisputed leader in search and digital advertising, it also holds a notable No. 3 position in cloud infrastructure.

The stock is currently selling for less than 5 times sales, and just 4 times next year's sales. The digital advertising market (Alphabet's bread and butter) has suffered at the hands of the downturn, weighing on sales and skewing its valuation. However, as the worldwide digital advertising leader, Alphabet will no doubt rebound when the economy recovers, giving investors a great stock at a pretty reasonable price.