Some of tech's most respected minds are calling for a pause in generative artificial intelligence (AI) development. A recently circulated open letter, which was signed by various politicians, university professors, industry leaders like Tesla CEO Elon Musk, and tech pioneers like Apple co-founder Steve Wozniak, calls on all AI labs "to immediately pause for at least 6 months the training of AI systems more powerful than GPT-4."

The letter, published by the Future of Life Institute, is a reflection of how fast things are moving in artificial intelligence. Just a few months ago, not many people knew what generative AI was or had used an AI chatbot as powerful as OpenAI's ChatGPT.

Now, some thought leaders believe the technology has gone too far without adequate guardrails in place. Whether an AI pause would be good or bad is debatable, but it's clear that such a move would set off shockwaves in some corners of the stock market. Here are three stocks that would dive in value on an AI pause.

A graphic of a brain above a laptop computer.

Image source: Getty Images.

1. C3.ai

Arguably, no stock has benefited more from the hype around AI than C3.ai (AI 3.85%), one of the few stocks on the market that is thought of as a pure-play AI stock. Shares of C3.ai had tripled in value just in 2023 until short-seller Kerrisdale Capital accused the company of accounting fraud, saying that it was booking fictional revenue. C3.ai stock fell sharply on the report, but it's still more than doubled year to date.

C3.ai isn't directly exposed to GPT technology, though the company recently said it would release a generative AI suite this spring.

However, the stock would be likely to take a hit on an AI pause because its price has become tied to the broader hype around the technology. It would be difficult for investors to separate the two, especially after C3.ai's revenue declined in its most recent quarter.

The pause the open letter calls for also has no clear end. If it were agreed to, it could freeze generative AI technology in its current state, which would kill C3.ai's potential or at least investors' perception of its potential. That would almost certainly send the stock tumbling.

2. Microsoft

Thanks to its close relationship with OpenAI, the ChatGPT creator, Microsoft (MSFT 0.11%) appears to have captured the early lead in generative AI. The tech giant has been a strategic partner of OpenAI since 2019, and it stepped up its investment in OpenAI by $10 billion early this year after ChatGPT was launched.

Microsoft is rapidly incorporating ChatGPT technology into a range of products, like its Azure cloud infrastructure platform, its Github code repository, and even software programs like Office. However, investors are most excited about the potential effect of ChatGPT on its Bing search engine after Microsoft unveiled the new ChatGPT-powered Bing in February, though it's not available to the general public yet. 

ChatGPT gives Bing a real chance of taking significant market share from Google. The threat to Alphabet was serious enough that that company called a "code red" meeting and scrambled to launch its own competitor, Bard AI. 

An AI pause would effectively unwind much of Microsoft's recent gains in AI and give challengers like Alphabet the opportunity to catch up. It would also kill the significant momentum Microsoft has built in recent months, both operationally and among investors.

Notably, Microsoft co-founder Bill Gates refused to sign the letter, saying that a pause wouldn't help solve the challenges ahead with AI and that it was better to focus on how best to use the technology to benefit the world.

3. Perion Network

Perion Network (PERI 1.80%) is not an AI stock, but an ad tech company, whose core business is providing an intelligent hub that optimizes digital ads for both brands and publishers.

The reason why an AI pause would be bad for Perion is that the company is a preferred ad tech partner of Bing, and gets much of its search traffic from Microsoft's search engine. In 2022, more than 40% of its revenue came from search. The vast majority of that revenue is from Bing. This means that a gain in market share for Bing would move the needle significantly for Perion in a way that it wouldn't for Microsoft, since search makes up just a small percentage of the tech giant's business.

Microsoft CFO Amy Hood said that each percentage market share that Bing gains in search represents nearly $2 billion in revenue, so it wouldn't take much to have an effect on Perion's bottom line.

Unfortunately, an AI pause would undo a lot of the optimism that's been baked into the stock this year. Shares are up more than 60%, even though management's guidance for 2023 called for sales growth to moderate.

While Perion has performed well over the last few years without the help of AI, the success of the new Bing could make the stock a big winner over the coming years, as its ad traffic would soar.