Bing, Bard, and the Bursting of the Conversational AI Bubble

When you’re in a bubble, you don’t see the bubble. What you see is hype, hope, and the crowd moving to one side of the proverbial boat. It’s fun for a while, as the party’s on that side of the boat – until the boat tips over, and then it’s time for the “I told you so” postmortem parade.

Everything is obvious in hindsight, but you must admit, last year’s NFT craze was among the most laughable bubbles in recent history. Truly, it was a snapshot of the Greater Fool Theory as overeager speculators shelled out hundreds or even thousands of dollars for pixels on a screen, portraying a bored ape or whatever.

As for the metaverse generally, it’s too early to tell whether it’s a bubble or a sustainable market segment. Mainly, it comes down to whether young gamers will be willing to pay for pricey headsets, and for in-game perks and shopping opportunities.

It should be no surprise, really, that the financial headlines aren’t buzzing about the metaverse in 2023, and that they hardly mention NFTs anymore. This year, the new shiny object in the markets is artificial intelligence (AI), and more specifically, conversational/generative AI.

At least this time around, the chatter isn’t about Roblox or bored apes. AI is useful beyond mere entertainment, and is anticipated to contribute $15.7 trillion to the global economy by 2030.

Courtesy: pwc.com

Machine learning, while controversial because some people will lose their jobs due to automation, will inevitably grow over the coming years. It makes sense, then, that investors would be curious about the current and future impact of AI.

Granted, AI has been around for years, but it blew up in the financial headlines this year due to the rising popularity of the ChatGPT chatbot program, which was developed by OpenAI. We might imagine businesses of all sizes using the ChatGPT platform to automate the basic functionalities of their online customer service.

I suspect, however, that ChatGPT was thrust into the mainstream headlines because young folks were using it to write their term papers. I’ve heard that essays produced by ChatGPT are often able to pass plagiarism checkers, though I’ve also heard that schools are becoming more sophisticated at detecting AI-produced written content.

Whatever the case may be, Microsoft jumped headfirst into the machine-learning fray by investing $10 billion in OpenAI and then embedding ChatGPT into Bing and Bing Chat. The next thing you know, there’s talk of Bing someday overtaking Google as everybody’s go-to search engine.

Whether Bing will actually dethrone Google as the undisputed heavyweight champion of search engines is debatable. Microsoft does seem to have the upper hand so far in the AI arms race, however. Embarrassingly, Alphabet’s AI chatbot, known as Bard, got an answer to a question about a telescope wrong in an advertisement.

Not that Bing hasn’t had its growing pains. Indeed, a New York Times article is gaining traction, claiming Microsoft’s AI-enhanced chat features left the author “deeply unsettled” and “even frightened” after allegedly telling him, “Your spouse and you don’t love each other.”

As is typical during a peak hype phase, however, eager financial traders remain undeterred by cautionary tales and admonitions. They’ve quickly bid up the share prices of practically any publicly listed company involved in AI, even when they’re not directly generating revenue from conversational/generative AI:

Courtesy: Yahoo Finance

Here’s a prime example, as BigBear.ai Holdings (BBAI) stock rocketed from $0.80 to more than $6 this year. Notice that the stock is already rolling over from its peak – could the bubble already be bursting?

It’s a possibility worth considering. BigBear.ai Holdings has been consistently unprofitable, and so have other AI-related businesses with pumped-up share prices, such as C3.ai (AI) and SoundHound AI (SOUN).

At least with Microsoft and Alphabet, you’d be invested in businesses with financial interests in multiple technology subsectors. It’s the pure-play AI stocks that have gone parabolic, and if you’ve been in the markets for a while, you should know by now how that story will probably end.

As always, the best policy is to be wary of the hype and evaluate each company on its own merits. The market’s weighing machine will eventually sort out the best from the rest – and already, the AI bubble may be closer to the end than the beginning.