Present recommendation on 3 AI stocks to invest in– beyond just ChatGPT

These are the companies that could cash in on the chatbot revolution

The bombshell release of ChatGPT has generated a frenzy of excitement among investors. But is it worth putting money into the companies that make chat bots – and could government intervention make investing a disaster? 

Since launching November 2022, the Microsoft-backed chatbot has become the fastest-growing consumer app in history, attracting 100 million users every month according to the Swiss bank UBS. 

The rapid rise of the programme has seen investors pile into a wide range of companies employing artificial intelligence. The investment platform Freetrade recorded a 43pc surge in the value of trades in baskets of AI stocks and exchange-traded funds in January, compared to the previous month. 

This article will explain what ChatGPT is and how investors can increase their exposure to this exciting sector.  

What is ChatGPT?

ChatGPT is a free chatbot driven by artificial intelligence and developed by research firm OpenAI.

As well as simulating a human conversation, the programme can generate computer code, offer advice to users and write fiction and non-fiction prose in a style of the requestor's choosing.

It was created using GPT-3 (Generative Pretrained Transformer 3), a language model trained on vast amounts of data online, one of the largest and most powerful models to date. 

Who owns OpenAI?

Elon Musk and Sam Altman co-founded OpenAI as a non-profit in 2015. Mr Musk resigned from OpenAI's board of directors in 2018, and the company became a “capped profit” in 2019. This means investors and employees get a capped return on investments, but anything above that goes towards the original OpenAI non-profit entity. 

It is backed by Microsoft, which has invested billions of dollars into the company. 

How does it differ from Google's Bard?

Google unveiled Bard in early February after ChatGPT went viral. Like ChatGPT, Bard is a chatbot built on a large language model, in this case Google's existing model called LaMDA.

Bard has been rolled out to a group of specialist testers but has not yet been made available to the public and so there are still questions about how Bard’s capabilities will differ from ChatGPT’s. It should be able to provide up-to-date information on the latest events, something ChatGPT initially struggled with because it was originally built on pre-2022 data. The latest iteration, ChatGPT4, was launched in March 2023 and has refined its capabilities further.

Microsoft's Bing AI – which is powered by ChatGPT4 – is now open to be used for anyone with a Microsoft account.

What other AI assisted chatbots are available?

The tech company IBM has an AI-powered chatbot called Watson Assistant that lets companies build their own virtual agents, but its capabilities are extremely limited compared to those of the groundbreaking ChatGPT.

China’s tech company Baidu has announced it is developing a rival to ChatGPT called Ernie Bot. 

What could threat an AI investment?

In May Britain's competition watchdog launched a review of AI models. The Competition and Markets Authority said it would be assessing how the development of AI can sit alongside safety, security and robustness; appropriate transparency and explainability; fairness; accountability and governance; and contestability and redress. The CMA is seeking views by June 2023.

What to invest in 

Investors cannot currently buy shares in ChatGPT creator, OpenAI, because it is not a listed company. 

So other firms offering AI services like C3 AI and Berkshire Grey have reaped the rewards of increased investor interest in the sector, with their share prices soaring 57pc and 103pc respectively year-to-date. 

Dan Lane of Freetrade said investors should refrain from pinning all their hopes and dreams on AI stocks believing they could be the next big thing. 

As novel as a lot of AI features are, very few balloon into a business that serve the entire world,” he said.

Instead, investors may be better off investing in companies building the infrastructure that will power the AI revolution.

Nvidia 

Founded in 1993, and with a market cap of £439bn, Nvidia is a leading designer of Graphic Processing Units (GPUs) which are used to train AI language models.

The hype around ChatGPT has prompted a rally in Nvidia’s share price, which gained 94pc in the last 12 months. 

With a price-to-earnings (p/e) ratio of 160, Nvidia is richly valued. The p/e ratio – calculated by dividing the company’s stock price by its earnings per share – tells investors how much they are paying to receive one dollar of earnings. Typically the lower the ratio number the better. To justify a high p/e an investor should be confident the earnings will grow substantially in future. 

Although expensive, Nvidia still looks like a solid long-term bet thanks to its dominance over the GPU market and its investment in other specialist tools aimed at accelerating machine learning

Samsung 

Ben Barringer of investment firm Quilter Cheviot said South Korea-listed Samsung is well-positioned to benefit from the AI trend as it produces memory chips which store the vast amounts of information used by language models. The stock also presents a cheaper option than Nvidia, as it has a p/e ratio of around 10. 

Another lesser-known stock for investors who want exposure to computer memory and data storage solutions is semiconductor maker.

Nasdaq-listed Micron Technology, Mr Barringer said. It is far more "expensive" on a p/e ratio, though.

Advanced Micro Devices

AMD has long been overshadowed by its rival Intel. But in recent years the company has made significant advancements in the development of computer processors, closing the gap between the two chipmakers. 

“We expect AMD to continue to take market share from Intel in data centres and PCs, and in the long term from Nvidia as well,” Mr Barringer said.

AMD has a “relatively small GPU business”, Mr Barringer said, but its growing market share within the Core Processing Unit sector is the main reason he expects the stock to profit from the rise of AI. Its share price is up 20pc year-to-date.

It's ultimately buyer's discretion to decide what's best stock to buy based on own constraints.