Artificial intelligence (AI) is all the hype these days as company after company appears to be launching its own AI-enabled products and services. Microsoft-backed ChatGPT was made available to the public last year, and many companies have come out with their own AI products since then, including Alphabet (GOOG 0.74%) (GOOGL 0.55%), whose Bard chatbot will help Google's search engine compete against Bing's AI-powered search in what could be the next big battleground for these two companies.
But the danger for companies such as Alphabet and others is that they could be rushing their AI offerings for the sake of not being late to the game, and that could end up doing more harm than good.
Many are jumping onto the AI bandwagon
AI is the latest buzzword in tech, and since the emergence of ChatGPT, many companies have announced that they are rolling out their own version of a chatbot as if they were just waiting for an excuse to do so.
In February, Alphabet announced Bard, which promises to rival ChatGPT and be Google's answer to Microsoft. Chinese tech giant Alibaba has also said to be working on a chatbot of its own. Tesla CEO Elon Musk has also said that he will work on creating a rival, dubbed TruthGPT, with the goal of it being a "maximum truth-seeking AI that tries to understand the nature of the universe." Earlier this year, Musk also founded an AI company called X.AI.
Then you've also got the companies that are simply saying they are incorporating AI into their businesses. COVID-19 vaccine maker Moderna, for instance, reportedly partnered with tech company IBM to use AI and quantum computing to help advance messenger RNA technologies (mRNA).
C3.ai, which is a pure-play AI stock, is one company that has simply benefited from the hype surrounding AI as its shares have jumped 60% this year, and that's after giving back some gains -- it was up over 200% at one point.
Why the AI rush could backfire for companies
All these companies rushing out to say that they are involved with AI are doing so at the risk of offering products and services too quickly for the sake of not falling behind the competition, as they could be coming out with poorly tested products.
Alphabet had a notable gaffe in February when its Bard chatbot provided wrong information during a promotional video. And as a result of the mistake, shares of Alphabet declined on the news.
While Alphabet has recovered from that temporary drop in value, the big takeaway for investors should be to not place too much value on these early developments. It's ultimately the execution and how the businesses incorporate AI that will determine whether their efforts prove to be successful and lead to a stronger business in the end. In 1951, UNIVAC brought the first commercial computer to market in the U.S. and had a first-mover advantage over IBM -- a lead that did not end up lasting.
Being first or being early doesn't translate into surefire success.
Investors shouldn't buy stocks based on AI news
AI is a trendy word, but it can mean different things to different people and businesses. C3.ai is involved with AI, making turnkey applications for enterprises to help make them more efficient. But that hasn't made the business a must-buy, as the tech company is still widely unprofitable, with its net losses over the past 12 months being nearly as large as its revenue ($262 million versus $267 million).
For Microsoft, incorporating AI into its products could make its offering stronger, but will it lead to more Office 365 subscriptions or lead to more advertisers using Bing search instead of Google? Those are the questions that investors should be asking before they decide to buy a stock based on its AI capabilities, and it can take a while to determine those answers.
That's why the safest approach for investors is to avoid getting caught up in the hype surrounding AI. Businesses, especially when it comes to tech, are always involved in developing next-gen technologies, and while it isn't always called AI, it may essentially be the same thing. Unless there are results that show that an AI-based product or service is leading to better sales or creating more growth opportunities, investors are better off taking a wait-and-see approach with all these new AI offerings.
Alphabet remains a solid buy regardless of what happens
Alphabet is a great long-term investment on its own merits today. The company recently reported earnings and its business proved to be resilient despite economic headwinds, posting $70 billion in revenue for the first three months of 2023, which was a 3% improvement from the previous year (6% when factoring out foreign exchange).
Alphabet is a great buy even if it doesn't have the latest and greatest AI chatbot just yet. Investors should trust that with a solid track record in developing Google Search and YouTube, it will figure things out with respect to AI as well. AI may change its business in the years ahead, but there's little reason to doubt that Alphabet won't again be at the forefront of innovation.
