AI Wave

AI Wave

Investors have been riding the AI wave, but seasoned wave riders know where best to exit the wave before the mania breaks.

But let us assume that AI is beyond the hype and technologists are on the verge of developing a mechanical mind with god-like intelligence.

What happens when machines with mechanical muscles and minds make humans obsolete from the economy?

The paradox of AI is it could collapse the economy, slash tax revenues, bankrupt the state and trigger anarchy.  

But the great superpower struggles for global hegemony are also underway. The winner, leading the next century, could be the superpower that dominates chips and AI. 

The War in Europe, if it is a testing ground for the next generation of weapons, has shown that a swarm of autonomous armed drones is more deadly and effective than a tank battalion. The future soldier or worker could resemble science fiction, a robot, a cyborg packed with AI and chips embedded. 

We could be in a brave new world where riding the AI wave is a macro trend

Chipmaker Nvidia joined the trillion-dollar club last month, in May. 

The company designs semiconductor chips made of silicon slices that contain specific patterns. Similar to flipping an electrical switch by switching on a light at home, these chips have billions of switches, processing complex information simultaneously.

Intel Corp (INTC.O) also provided last month with a handful of new details on a chip for artificial intelligence (AI) computing it plans to introduce in 2025 as it shifts its strategy to compete against Nvidia Corp (NVDA.O) and Advanced Micro Devices Inc (AMD.O).

But it is Nvidia, for now, that is stealing the limelight as investors ride the AI wave

After posting record sales, the company added $184 billion to its market value in one day. Only two other companies have exceeded this number: Amazon ($191 billion), and Apple ($191 billion).

Tech giants, including Google and Microsoft, have Nvidia chips to power their AI operations. Moreover, Google plans to use generative AI in six products in the future. Each of these has over 2 billion users. 

But riding the AI wave comes with risks.

Investor sentiment for Nvidia stocks could be in the mania phase.

The company’s share price is over 200 times its earnings on a per-share basis. 

Riding the AI wave, gauging with P/E ratio

A good PE ratio is considered 20 to 25. In other words, the stock price should trade no more than 25 times its earnings. 

Intel has a P/E ratio of 37.66 for a similar period.

Advanced Micro Devices P/E ratio is 513.96.

Nvidia P/E ratio is 214.4

Chip ETF funds might be the best way to get exposure to AI. 

Electric vehicles (EVs) are another way investors could ride the AI wave, do your own research.