But some investors and people in the industry are worried the funding frenzy is turning into a bubble<\/a>, with money thrown at companies that have neither earnings nor an innovative product nor the right expertise.<\/p>\n\n\n\n Emad Mostaque, founder and chief executive of Stability AI, a generative AI firm that also counts California-based Lightspeed among its funders, expects the current wave of investment in AI companies to create \u201cthe biggest bubble of all time.\u201d<\/p>\n\n\n\n \u201cI call it the \u2018dot-ai\u2019 bubble, and it hasn\u2019t even started yet,\u201d Mostaque said recently, referring to the \u201cdot-com\u201d bubble of the late 1990s, when speculative bets on nascent internet companies ultimately resulted in big losses for many investors.<\/p>\n\n\n\n The investment into Mistral AI is just one of many this year by venture capitalists jostling for a seat aboard the AI rocketship. In the first six months of 2023, they plowed $15.2 billion into generative AI companies globally, according to Pitchbook data.<\/p>\n\n\n\n The bulk of this sum comes from Microsoft (MSFT)<\/a>\u2019s $10 billion investment<\/a>, announced in January, in OpenAI, the developer of popular generative AI chatbot ChatGPT.<\/p>\n\n\n\n But even excluding Microsoft\u2019s bumper deal, the value of VC investments in generative AI was up by almost 58% compared with the same period in 2022.<\/p>\n\n\n\n The release of ChatGPT<\/a> to the public in November was the catalyst for the current buzz, according to Moyroud at Lightspeed. He has seen an increasing number of founders mention generative AI in their pitches for funding \u2014 but he takes some of those pitches with a pinch of salt.<\/p>\n\n\n\n \u201cWe\u2019ve [seen] some people that haven\u2019t necessarily spent a lot of time in the industry and are adding \u2014 if you could say so \u2014 a bit of generative AI sparkle\u201d to their pitches, Moyroud said, noting that it takes time to tease out the \u201csubstance\u201d behind some founders\u2019 claims.<\/p>\n\n\n\n He doesn\u2019t include Mistral AI in that group. Moyroud\u2019s venture capital firm \u2014 which he would only say contributed a \u201csignificant portion\u201d to the startup\u2019s \u20ac105 million haul \u2014 was paying a premium for the three founders\u2019 \u201cunmatched\u201d experience: Previously, they all worked with a type of generative AI called a \u201clarge language model;\u201d two of them at Meta, Facebook\u2019s parent company, and one at Google\u2019s DeepMind.<\/p>\n\n\n\n \u201cThere\u2019s only a subset of maybe 80 to 100 people in the world who have had the experience training large language models\u2026 [and] at scale,\u201d Moyroud noted.<\/p>\n\n\n\n It\u2019s not just big-money private investors hoping to cash in on the AI boom: Flows into the world\u2019s top five AI-focused exchange-traded funds have ballooned by an average of 35% since the start of the year. And, after a bruising 2022<\/a>, stocks on the tech-heavy Nasdaq index have soared nearly 42% over that time, outpacing the broader S&P 500 index, which has risen less than 19%.<\/p>\n\n\n\n In May, Nvidia, a US maker of the advanced microchips required to power generative AI, became the sixth company in the world to reach a market capitalization of $1 trillion<\/a>. Its stock has soared by 207% since the start of the year.<\/p>\n\n\n\n But Nvidia\u2019s stock has also traded on a price-to-earnings ratio \u2014 a measure of whether a share is over- or undervalued \u2014 of 237 over the past 12 months. The higher the ratio, the more likely a stock is overvalued. For comparison, companies on the S&P 500 have traded on an average ratio of 24 over the same period.<\/p>\n\n\n\n While Nvidia is profitable, C3.ai, an AI software company whose stock has soared over 240% this year, is not<\/a> \u2014 and is not expected to be, either this year or next.<\/p>\n\n\n\n The situation is strikingly similar to the dot-com bubble, investors told CNN. But, with every bubble, there must come a pop.<\/p>\n\n\n\n As investors funneled money into dot-com companies from late 1998, the Nasdaq\u2019s value more than doubled during 1999 alone. But, despite high hopes and huge valuations, most of the startups never generated any revenue or profit<\/a>, according to Goldman Sachs. Stocks on the Nasdaq nosedived 81% between its peak in March 2000 and late September 2002. The bubble had well and truly popped.<\/p>\n\n\n\n Mike Reynolds, vice president of investment strategy at Glenmede, a US wealth management firm, said the current excitement is \u201creminiscent of the [90s] tech bubble when a lot of\u2026 companies weren\u2019t turning earnings yet, but people were getting so upbeat on their prospects that they were willing to bid [their stock price] ever higher.\u201d<\/p>\n\n\n\n \u201cWe\u2019re yet to really see [the AI hype] translate into concrete fundamental results,\u201d he added.<\/p>\n\n\n\n It will be \u201cvery difficult\u201d for investors to know if they\u2019re backing the AI equivalent of the next Amazon (AMZN)<\/a> or Google (GOOGL)<\/a>, Reynolds said. Of the 10 most valuable tech and communications stocks today, only two \u2014 Microsoft (MSFT)<\/a> and Cisco (CSCO)<\/a> \u2014 were in the top 10 at the peak of the dot-com bubble in March 2000, according to an analysis by Glenmede.<\/p>\n\n\n\n \u201cIt\u2019s not always obvious who the long-term winners of innovative disruption are going to be,\u201d Reynolds said.<\/p>\n\n\n\n In the late 1990s, he added, a firm could \u201cjust put the word \u2018dot-com\u2019 at the end of their company name, and their stock price [would go] up 10% the next day.\u201d<\/p>\n\n\n\n Jordan Jacobs, co-founder and managing partner at Radical Ventures, a Toronto-based VC firm specializing in AI, has spotted a similar impulse among tech founders today.<\/p>\n\n\n\n \u201cBuying a \u2018dot-ai\u2019 domain, and claiming to be an AI company\u2026 doesn\u2019t really make you an AI company,\u201d Jacobs told CNN. \u201cAs investors, one of our jobs is to figure out who\u2019s real and who\u2019s not.\u201d<\/p>\n\n\n\n Jacobs, who has founded two AI companies in the past 13 years, said he thinks there is a \u201ccomplete lack of appreciation\u201d for just how valuable the technology will be further down the line.<\/p>\n\n\n\n He predicts AI will be integrated into, or completely replace, every piece of software within the next decade, producing \u201ctrillions of dollars of economic value.\u201d The technology is also breaking new ground in the field of drug development and climate change modeling, he said.<\/p>\n\n\n\n The release of ChatGPT, combined with Microsoft\u2019s blockbuster investment in OpenAI, caused \u201cgeneralist investors to suddenly wake up\u201d to AI\u2019s extraordinary potential. It was also a moment when everyone finally got to touch the technology.<\/p>\n\n\n\n That, he said, felt \u201ca bit like magic.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":" French startup Mistral AI didn\u2019t have a working product when it raised \u20ac105 million ($118 million) in one of Europe\u2019s largest-ever seed rounds last month. But Antoine Moyroud, a partner at Lightspeed Venture Partners, one of the biggest backers of the fledgling firm, wasn\u2019t fazed. \u201cIt may seem like a very big number,\u201d he told […]<\/p>\n","protected":false},"author":2,"featured_media":12011,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[4,5],"tags":[],"class_list":["post-12010","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-international"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/www.funminews.com\/wp-content\/uploads\/2023\/07\/image-9.png?fit=1280%2C720&ssl=1","jetpack_likes_enabled":true,"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/posts\/12010","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/comments?post=12010"}],"version-history":[{"count":1,"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/posts\/12010\/revisions"}],"predecessor-version":[{"id":12012,"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/posts\/12010\/revisions\/12012"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/media\/12011"}],"wp:attachment":[{"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/media?parent=12010"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/categories?post=12010"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.funminews.com\/index.php\/wp-json\/wp\/v2\/tags?post=12010"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"https:\/\/i0.wp.com\/www.funminews.com\/wp-content\/uploads\/2023\/07\/image-9.png?resize=696%2C392\")
<\/figure>\n\n\n\n