All eyes — at least in the investing community — have been on artificial intelligence (AI) companies for quite some time. Over the past few years, these players have driven overall stock market gains, making them a favorite of investors. In more recent times, while AI stocks have continued to climb, they’ve also been looked at with a certain degree of caution.
Tech giants aim to spend nearly $700 billion on the AI infrastructure build-out this year alone, and investors question whether such spending is necessary given the future revenue opportunity. Demand for AI has been enormous, however, prompting companies to make these major investments to keep up and potentially win over time.
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All of this means investors are particularly keen on considering the latest earnings figures from key companies in the space. This past week, one such player — OpenAI — divulged its latest revenue figures, which were lower than a figure reported last month, according to press reports. As a result, AI stocks, from Nvidia to Oracle, fell during the trading session.
Following OpenAI’s revenue report, should you really buy AI stocks now? Let’s find out.
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OpenAI’s revenue falls short of certain expectations
So, first, it’s important to consider OpenAI’s figures and why this company’s report worried investors. OpenAI, in a presentation to investors, said its annualized revenue reached $50 billion as of the end of September, and this fell short of the $68 billion reported at the end of last month. (CNBC, citing a person familiar with the matter, said the earlier figure included revenue from OpenAI’s partners, allowing investors to track its progress in relation to rival Anthropic.)
OpenAI, the owner of ChatGPT, is a key player in the AI landscape and offers insight into the revenue opportunity. Investors expect that if tech giants invest heavily in infrastructure, customers using these chips and systems will generate tremendous revenue. If this isn’t happening, it could mean these tech players are overspending. And if they rein in this spending at any point, it could be bad news for the makers of chips and related products. In such a scenario, those building out, such as cloud companies and many others in the AI space, could see earnings and stock performance suffer.
So, against this backdrop, should you really buy AI stocks right now? It’s important to keep in mind that OpenAI’s report is just one snapshot of the revenue picture, at one point in time, and growth remains significant. The company also reported total run rate growth of 77% in the third quarter, CNBC reported, citing its source.
Taking a long-term view
Meanwhile, it’s key to look at the complete long-term picture. Even if revenue growth for certain players is slower than expected, over time, companies that have invested still may greatly monetize those investments. Companies and individuals have started to use AI, but this trend is in its early stages, with much more to be accomplished through the application of this technology to address real-world problems.
Your decision whether to invest in AI stocks today depends on your comfort with risk and your investing priorities. For example, if you’re a cautious investor looking for dividend income, you’re better off turning to other industries, such as the pharmaceuticals and medical device sectors. If you’re a middle-of-the-road investor, you might consider adding some shares of strong AI players that have proven track records of growth, such as Nvidia or cloud computing giant Amazon. And if you’re an aggressive investor, you might consider certain AI stocks that have suffered this year but hold potential to gain over the long run, like AI cloud specialist CoreWeave.
If you are buying AI stocks today, they should be part of a well-diversified portfolio. And I would say this about purchasing stocks in any industry — it’s never a good idea to go all in on just one or two stocks or industries. Diversification offers you a certain degree of security because if one sector suffers, others may compensate.
The long-term AI picture remains bright, and this means buying quality AI stocks today could result in a big win down the road.
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Adria Cimino has positions in Amazon and Oracle. The Motley Fool has positions in and recommends Amazon, Nvidia, and Oracle. The Motley Fool has a disclosure policy.
Following OpenAI’s Revenue Report, Should You Really Buy AI Stocks Right Now? was originally published by The Motley Fool
