In the wake of a historic bear market of 2022, Wall Street appears to have turned the corner. After languishing for much of last year, 2023 is setting the stage for an epic bull run.
Each of the major market indexes has climbed more than 20% from their respective lows, and one of the biggest catalysts has been recent developments in the field of artificial intelligence (AI). While stock price gains have been remarkably uneven, improvements in the overall economic outlook could help drive the overall market even higher.
With that as a backdrop, several of the biggest providers of generative AI solutions were rallying on Tuesday morning. Alphabet (GOOGL +0.66%) (GOOG +0.41%) rose 2.1%, Meta Platforms (META 1.18%) climbed 2.1%, Amazon (AMZN +0.55%) jumped 2.7%, and C3.ai (AI +3.03%) surged 7.9% as of 1:30 p.m. ET.
While positive economic news helped drive today's general market rally, a collaboration between two of the most notable players in the AI space provided an additional catalyst.
Image source: Getty Images.
Is the economy finally in recovery mode?
Sentiment improved measurably on Wall Street today, as developments on the economic front were a welcome respite.
The latest monthly report on inflation, issued by the U.S. Bureau of Labor Statistics, revealed that prices continued to moderate, suggesting the headwinds that have racked the economy might finally be abating. The Consumer Price Index (CPI), the most widely accepted gauge of inflation, increased 3.2% in October compared to the year-ago period and was flat month over month.
The results were better than economist's expectations of a year-over-year increase of 3.3%. The "core" inflation data, which excludes volatile food and energy prices, proved more stubborn, up 4% compared to this time last year, and climbing 0.3% sequentially; however, both were still better than expectations.
While there's still work to be done, the news shows that the Federal Reserve's campaign of rising interest rates is having the desired effect. Inflation has continued its gradual improvement since peaking last summer and has now reached its lowest level in more than two years.
NASDAQ: AMZN
Key Data Points
Developments on the AI front
While the improving economic picture was certainly front and center for investors today, there were also specific developments in the AI space.
C3.ai announced an expansion of its strategic partnership with Amazon Web Services (AWS). The pair agreed to expand their collaboration to develop and deliver generative AI solutions that "solve customers' critical business challenges across a variety of industries," according to a press release. By focusing on the AI applications most needed by enterprise customers, C3.ai will likely expand the market for its AI models, and AWS will increase the utility of its cloud infrastructure offering by providing additional AI solutions to its cloud customers.
Are these AI stocks a buy?
Each of these technology companies is working to stake its claim in the vast opportunity that has emerged due to recent developments in generative AI.
While there's no consensus on just how big the market for AI will be, even the most conservative estimates are sizable. Cathie Wood's Ark Investment Management calculates that AI could generate $14 trillion by 2030. Analysts at Goldman Sachs estimate an economic impact at $7 trillion by the end of the decade. And research by Bloomberg Intelligence concludes that the market for generative AI will top $1.3 trillion by 2032.
For investors looking to stake their own claim in AI, these estimates make two things clear. First, no one knows for sure how big the market for AI will ultimately be. And second, there's little doubt the opportunity will be vast. It's also reasonable to conclude that these companies are a good place to start, though not all AI providers are created equal.
For example, Amazon's cloud infrastructure business gives the company a captive audience for its AI products and services, as does Google Cloud. Meta Platforms has taken a different approach, open-sourcing its AI model, in hopes that it will encourage collaboration, hastening its development.
That said, each of these tech titans boasts an industry-leading business -- Amazon's e-commerce, Google's search, and Meta's social media platforms -- that will provide investors with a degree of safety, while the AI opportunity plays out. C3.ai, on the other hand, is a pure play in the AI space, and as such, has pinned all its hopes on success in the field -- and offers investors no such assurances.
It's also worth noting that each of these stocks is selling at a discount to its historical valuation, though Amazon is the clear bargain of the four. C3.ai is selling for 10 times forward sales, while Meta Platforms, Alphabet, and Amazon are selling for 6 times, 5 times, and 2 times forward sales, respectively.
While there's been a lot of excitement surrounding C3.ai, I continue to have my doubts. I believe that an investment in Meta Platforms, Alphabet, or Amazon is a smart way to take part in the AI revolution, while C3.ai is a much riskier proposition.
