The boom in AI stocks reflects optimism about massive growth opportunities from artificial intelligence. But investors also should recognize the potential for massive disruption, even for companies that are making big AI bets.
Google parent Alphabet and Adobe were big losers last week on fears that startup OpenAI poses a significant threat to their businesses.
OpenAI To Take On Google Search?
OpenAI, backed by Microsoft, is working on a web search tool, taking on Google directly. That's according to a Wednesday report from The Information. That stepped on Google's Thursday launch of Gemini 1.5, its latest AI training model.
Google stock slumped 5.7% for the week to 140.52, slightly below the 50-day line. Shares are still above a 139.42 cup-with-handle buy point. However, the relative strength line has tumbled to nearly undercut a mid-December low. The RS line, the blue line in the chart provided, tracks a stock's performance vs. the S&P 500 index.
Google's RS line did not confirm the stock price move to record highs in late January.
Shares edged lower early Tuesday.
Adobe Sore Over Sora
Meanwhile, OpenAI released Sora, an AI tool that can make realistic videos from simple text prompts.
Sora could challenge Adobe's Creative Cloud suite.
Adobe stock retreated 2.35% on Thursday, falling below the 50-day line, then plunged 7.4% on Friday. Shares dived 12.8% for the week to 546.66, a three-month low and approaching the 40-week line.
The relative strength line for ADBE stock has hit an eight-month low. As with Google, Adobe's RS line did not confirm ADBE's brief foray to record highs in early February.
Adobe shares fell slightly early Tuesday
As for AI suppliers such as Nvidia, Google and Adobe's potential woes may not matter much. If anything, threatened tech giants may have accelerated their AI spending, if only to avoid falling behind.
AI Stock Lesson For Investors
But for investors, don't assume that companies can't simple invoke "AI" as a magic spell, guaranteeing a rising share price and real-world AI leadership. Google and Adobe have put artificial intelligence efforts front and center. And perhaps those efforts will pay off handsomely.
But just as with the dot-com boom, the AI revolution will be transformative, offering huge growth opportunities. But there will be many losers and laggards along with the winners.
So artificial or not, use your intelligence and pay attention to stocks' fundamentals and technicals. The lagging RS lines for Google and Adobe before last week was a yellow flag, especially with Nvidia and many other AI stocks showing true market leadership.
Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.
