AI boom explained
With AI stocks going mainstream, it’s worth considering just how fast progress is being made. ChatGPT was only launched in late 2022, with GPT-4 following in March 2023.
Now AI is becoming embedded in entertainment, social media, art, retail, security, sport analytics, manufacturing, self-driving cars, healthcare, and warehousing alongside dozens of other sectors.
The financial possibilities are arguably essentially endless, as shown by Nvidia’s recent quarterly results: revenue rose by 262% year-over-year to $26 billion, with CEO Jensen Huang arguing that ‘the next industrial revolution has begun — companies and countries are partnering with NVIDIA to shift the trillion-dollar traditional data centers to accelerated computing and build a new type of data center — AI factories — to produce a new commodity: artificial intelligence.'
Of course, older investors who lived through the dotcom bust may be feeling a distinct sense of déjà vu. History often rhymes, and the current hysteria associated with AI may prove to be overdone in the future.
While AI is undoubtedly filtering into ever more aspects of daily life and work environments, new tech has a history of inspiring market bubbles which pop before the winners go on to generate sustainable growth. This was arguably the case with the dot-com crash — and while no two scenarios are exactly the same, history does tend to rhyme.
On the other hand, the AI advances of the last 18 months have been extraordinary — with artificially generated text, imagery and video available to the masses on a scale never before seen.
There are even rumours that OpenAI has developed a model approximating Artificial General Intelligence (AGI) — capable of surpassing human-like intelligence with the ability to self-teach. And then there’s the employee question: many companies are already laying off staff in favour of AI-based replacements, and this trend could be set to continue.
Most recently, Apple has announced a potentially groundbreaking partnership with OpenAI to bring artificial intelligence to the iPhone.
But with some disquiet not just at Nvidia, but other popular shares including Super Micro Computer, Palantir, ARM and AMD, it remains to be seen whether this is the end of the bubble or simply some profit taking before a sustained move higher.
As ever, while there may be significant growth opportunities, there are also risks.
As always, past performance is not an indicator of future returns.
Best ASX AI stocks to watch
The following are five well-known AI-dedicated shares on the ASX. While market titans like Block or WiseTech Global do make use of AI in their operations, they are not specifically AI-focused and therefore are not included in this list — indeed, most larger companies are starting to incorporate artificial intelligence to some degree, and a cut-off between what is and what it not an AI company will always be subjective.
Importantly, these ASX AI companies are much smaller and perhaps higher risk than the US operators — but this does mean they may have stronger growth potential. These stocks are ordered by market capitalisation.
BrainChip
Like many smaller AI companies, BrainChipshares rocketed to all-time-highs during the pandemic era of ultraloose monetary policy and ‘meme’ hysteria, reaching $1.76 in early 2022 — before falling to just $0.16 in January 2024.
However, the stock then recovered sharply to as high as $0.49 in late February, perhaps buoyed by both the general AI bubble, and news that Elon Musk’s Nueralink had successfully implanted a chip into its first human patient.
It has since settled at $0.22 per share today. For context, late March saw BrainChip made use of its put option agreement with LDA Capital, whereby LDA Capital will subscribe for up to 40 million shares. It informed investors at the time that available funding under this agreement is worth $50.2 million, with the company committed to drawing down a minimum of $12 million by the end of the calendar year.
BrainChip owns the Akida platform, which is built on a novel digital neuromorphic chip with a spiking neural network. It essentially is an attempt to copy the way individual neurons pass messages to each other through the brain. The key moat is that the AI is hosted solely inside the semiconductor, which means it is not reliant on staying connected to the internet — this makes it far more secure than competitors, and also reduces the associated atency.
In what BrainChip described a ‘transformational year as the Company focused on delivery and marketing of Akida 2.0,’ the group made a net loss after tax for the year ended 31 December 2023 of US$28.9 million. This reflected lower revenue as its focus moved to the development and marketing of Akida 2.0, alongside a small increase in operating expenses.
BigTinCan Holdings BigTinCan Holdings is a mobile content sales enablement platform, designed to make accessing and presenting content easier for salespeople. It allows marketers to recommend content for salespeople to share with prospects on their mobile, based on the stage of the deal.
The company boasts many blue-chip partners, including the likes of Apple, Adobe, Salesforce and Microsoft. It just joined forces with the latter — now the world’s largest company — to work with its 365 Copilot to boost seller performance and sales productivity with AI-powered collaboration for enterprise teams.
Bigtincan was also subject to a possible private equity bid in 2023, though the firm in question walked away in November.
In half-year results, the company saw EBITDA of $1.9 million and operating revenue of $59.5 million. Gross margin stood at 88%.
Appen Appen works to provide accurate and reliable human annotated datasets that are used to help develop AI and machine learning for some of the world's biggest brands. It is well-known as a partner to help companies transition into AI usage, with a package of large language models and AI training products for employees.
However, the company has struggled in recent years. It hit a market capitalisation of $4.3 billion in August 2020, but has since fallen to just $110 million. This has been a result not only of rising rates, the client loss, executive departures and falling revenue.
However, it does still have several US tech titans on the client list. At the recent AGM, CEO Ryan Kolln admitted that 'revenue declined approximately 30% to $273.0 million in FY23...this is a disappointing result for the business and our shareholders.' But the CEO also highlighted ongoing cost reductions and some successes in the strategic turnaround.
AI-Media Technologies Ai-Media Technologies is a global organisation which provides a suite of technology-driven live and recorded captioning, transcription, and translation products and services. It helps many of the world's leading brands caption their TV broadcasts, live streams, events, virtual meetings and more.
In full-year results, AI Media Technologies saw revenue rise slightly $61.8 million, though technology revenue grew by 33%, driven by 45% growth in flagship LEXI’s revenue. Accordingly, gross profit rose by 12% to $36.9 million.
The company recently launched LEXI 3.0, an improved AI-based product which leverages the latest advances in artificial intelligence to provide greater accuracy, and drive wider adoption among its client base.
Unith
Unith is an ASX penny stock, which focuses on media technology surrounding conversational commerce, alongside its Talking Head platform designed for mobile and smart device applications. The platform combines artificial intelligence with machine learning based technology to generate digital avatars, that appear as unique individuals.
Like many penny shares, the stock is volatile. It recently announced plans to raise $4.5 million through a share placing, at a 37.9% discount to the previous day’s closing price. However, recent financial results have seen double-digit revenue growth, making the company an interesting investment for higher risk investors.
In its May 2024 investor update, the company noted several operational achievements, alongside a reasonable cash balance of $4.8 million in cash at 31 March 2024.
UNT Price at posting:
1.2¢ Sentiment: Buy Disclosure: Held
(20min delay)