Despite initial enthusiasm that artificial intelligence, specifically generative AI such as ChatGPT, has been the major driving force propelling tech markets this year, analysis from Deutsche Bank suggests a more nuanced picture.
While Nvidia surged 141% post-ChatGPT, contributing to the Nasdaq 100 gaining around 20%, AI hype has not been the pivotal market driver many assumed.
While AI is seemingly having an impact on other industries like advertising, the tech sector "has somewhat decoupled from the broader market this year but it is less clear that AI had a major role in this", said the Deutsche analysts.
While, early on, ChatGPT was a catalyst that sent semiconductor stocks like NVIDIA Corp (NASDAQ:NVDA) soaring and left the software industry firms behind, the analysts noted that various industries across the technology, media and telecoms sector "seem to be converging", which "points to a waning effect on markets of generative AI and indicates investors are refocusing on non-AI factors in their stock decisions".
All talk and no action?
Analysis of corporate earnings transcripts finds that companies discussing AI extensively have generally underperformed.
Mentions of AI-related keywords have sharply accelerated this year, which the analysts said was companies trying "to pitch revenue and/or cost benefits from the technology to their investors".
Data shows that companies that began talking about AI when ChatGPT was released have continued to do so this year.
"Stock returns, though, are a different story and have been negatively correlated with the intensity of AI talk," it was noted however.
"In part, this is because AI was more in focus for smaller and less profitable firms. In other words, corporate AI enthusiasm is sticky, unlike investor attitudes which seem to be more discerning."
Mind the gap
The gap in returns between semiconductor and software stocks has narrowed significantly, the Deutsche analysts said.
The note points out that non-AI factors like rising real yields have become dominant narratives, as moves across the tech sector synchronise.
Looking ahead, Deutsche suggests that the "big gains in AI are likely to remain in private markets" for the near term.
While venture capital may strike gold with the "next FAANG of AI", those winners are not expected to go public for some time.
For corporates, the analysts said they expect the approach to AI remains that it is a "real option" and they will "try to ensure access to potential upside from the technology in the future while avoiding large-scale commitments today".