The generative artificial intelligence (AI) hype has been hard to avoid, no matter who you are. Indeed, we've got none other than Microsoft (MSFT, Financial) backed OpenAI to thank for making AI such an exciting term in the investment world.
ChatGPT, Dall-E and many other ground-breaking generative AI technologies have been exciting for virtually everybody, from everyday users to data scientists and businesses looking to incorporate some AI to improve day-to-day operations. Looking ahead, I don't see this AI freight train pulling on the brakes. At least, not any time soon, as so many companies (not just technology companies) look to discover what the technology has to offer.
Over the past few weeks, it's hard not to think you missed the run-up in AI stocks. For example, shares of Microsft are up double digits (around 20% or so) year to date. If there were any critical takeaways from the 2022 tech plunge, it was that chasing hot stocks can have disastrous consequences. Though Microsoft has felt a bit of pressure due to the macroeconomic pains hitting many companies, the stock has somehow found a way to proceed higher. Unsurprisingly, the potential of AI and its OpenAI bets are to thank for the recent run that's driven Microsoft stock's multiple higher.
Microsoft: That's quite a bit of multiple expansion...
As of this writing, Microsoft shares traded for a price-earnings ratio of 31.72. The steep price run is thanks to quite a bit of multiple expansion. Though nobody knows where Microsoft will settle in light of AI's potential, one has to ask themselves whether it's justifiable to buy a stock after a big multiple-expansion-driven rally.
That's up for debate. Over the coming quarters, we shall see how the results compare to the estimates. If they fall short, investors may discount the "AI factor," and contrarians may be able to get a better price on the name. For now, I think patience could be key.
Personally, I'm open to exploring other companies that stand to benefit from AI. AI's rise could help give many companies, including those not on investors' radars, a boost of sorts.
It's not just the software or hardware companies that will stand to profit from the continued rise of AI technologies. Other companies that have value to the AI industry despite not being involved directly in AI themselves are worth consideration. One in particular that's caught my attention is Getty Images (GETY, Financial),
Getty Images: Don't underestimate the media asset company
Shares of Getty Images have soured since landing on the public exchanges last year. There was an initial boom of excitement, followed by a very long bust. It's been a painful fall for Getty Images. Back in late March, however, the stock rose a whopping 82% or so from trough to peak.
Indeed, the AI hype may be to thank for such a huge upside move. More recently, though, Getty's stock has pulled back, with shares falling more than 7% on a mixed Friday for markets. Down around 22% from its April peak, I do think Getty could be a good value at about $5 per share. As of Monday, the stock was trading around $6.72 per share.
There's no sugar-coating the stock's price chart. And though it's still a tad challenging to value the name given the macroeconomic headwinds ahead of us, I think Getty's long-term outlook remains very interesting thanks to a recent partnership with none other than AI hardware top dog Nvidia (NVDA, Financial). Dismiss Getty Images as "just a visual media company" if you will, but I do think the company has a unique role to play as the world pushes forward with generative AI technology.
Simply put, licensing media assets (think photo, video and all the sort) to clients is a pretty straightforward, easy-to-understand business that can result in stable operating cash flows over time. In the AI age, these media assets could be used to help power incredible generative AI technologies, just like Nvidia's Picasso platform.
You can have the greatest AI model in the world behind a text-to-anything prompt. However, I believe such an AI-powered platform is only as good as the data (or media assets) it has access to. In that regard, Getty Images is pretty much sitting on a gold mine of assets. The company's high-resolution media assets aren't just beautiful; they can be seen as the input to some pretty sophisticated image-generating AIs.
Earlier this year, Getty Images sued the company behind AI art generator Stable Diffusion for copyright infringement, alleging the company used its images for training "without permission." I think the suit is a message that's loud and clear for industry players: you best pay (or at least ask permission) for the assets you use to train your AI models!
Licensing is a big deal when it comes to training AI, and as more companies wish to train their AI models, I'd look for Getty and other asset owners to profit as companies look to purchase licenses for assets.
Final thoughts
Of late, the companies with skin in the AI game have been quite resilient. In a market that faces even higher interest rates, it's remarkable that the mega-cap AI plays have been able to rally.
There's a lot of negativity out there as well, but we may have reached a point where the potential behind generative AI is enough to help investors look at the longer-term opportunities that probably won't be stopped by a recession. Beyond the obvious AI plays (like Microsoft), I think other companies that are adjacent to the industry like Getty Images also stand to benefit from AI's ascent.
