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AI gold rush: Is it fool's gold or a tech treasure trove?

We have all seen this movie before. A groundbreaking innovation sparks excitement, investors pile in, and common sense disappears.


Everyone wants a piece of the action, and who cares if the companies involved are actually profitable? Forget about fundamentals; it's all about chasing the next big thing!


This time, Artificial Intelligence is the shiny object everyone's chasing.


Remember ChatGPT? That mind-blowing AI chatbot that took social media by storm? It's the tip of the iceberg. Wall Street is already salivating, churning out funds, products, and IPOs faster than you can say "artificial intelligence."


History whispers: canal craze, railroad rush, dot-com dreams. Each boom ended the same – a glittering few win big, while the rest scramble for scraps. Let me highlight what you will soon see.


The wisdom of patience


Here's the thing: You can absolutely believe in the transformative power of AI without going overboard on every AI stock that hits the market.


Bubbles don’t form out of thin air. They start with a kernel of truth that makes them irresistible and hard to fight against. Initially, the crowd has the facts on its side. Everything predicted about the internet 25 years ago came true, and then some. Yet, almost none of the companies from the late 90s survived.


The lesson? It's possible to be bullish on AI's potential while remaining skeptical of specific companies.


Beware the hype machine


Social media is about to become a battleground for AI hype. Get ready for self-proclaimed experts popping up everywhere, promising to be your guide through the "AI space." They will be on YouTube, podcasts, and Twitter, pushing their latest AI picks while conveniently forgetting to mention their financial stake in the game.


Remember, skepticism is healthy, not outdated.


The coming slaughter (figuratively speaking)


In the 2020s, making money is not enough; there’s a need to belittle those who didn’t get in early. The early AI investors, who got in before the boom, will be out for blood. They will target the cautious folks who sat on the sidelines.


Making money isn't enough anymore, it's about proving everyone else wrong. Social media and investing are a toxic mix that never ends well. Stay calm and collected, folks!


Don't be fooled by ETFs


Those AI-themed ETFs might seem tempting but tread carefully. Many are loaded with generic tech stocks, not pure AI plays.


You can find a list of AI-related ETFs, but most are packed with large-cap Nasdaq names or robotics companies where AI is a small part of their business.


Take one of the biggest AI ETFs, the Robotics & Artificial Intelligence ETF. Looking at the holdings, you will realise that more than 50% of the companies are not pure AI plays. They adopt AI as part of their business.

Artificial intelligence ETFs do not have all pure AI plays.
Source: Robotics & Artificial Intelligence ETF

These can work as investments, but they are not pure AI plays that rise with AI excitement. They may use AI, but don’t invent it. It’s a different thing.


Do your research before you jump in!


The press release parade is coming


Prepare for a flood of press releases from companies desperately trying to cash in on the AI craze. Remember the ".com" frenzy of the 90s? This is no different. Every company, from giants to penny stocks, will slap "AI" on their name, desperately attempting to boost their stock price.


Please don't fall for it!


The Wall Street assembly line


Wall Street loves a good gold rush, and AI is their latest target. They sell what people want to buy, and if a little of a good thing is good, a lot is excellent.


That’s how we ended up with a flood of SPACs, IPOs, and cryptocurrencies. Publicly traded AI pure plays will multiply rapidly. A few might become the next big thing, but most will fizzle out when the hype fades. The question is: can you tell the winners from the losers?


AI is a powerful technology with a bright future. But don't get swept away by the hype. Be smart, research, and remember that even a gold rush can leave you empty-handed. To close, I will share a famous quote by Warren Buffett on financial bubbles.

A reminder from Warren Buffett about the artificial intelligence hype.


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