Artificial intelligence is in the news again. The board at OpenAI canned the founder, Sam Altman. This is being compared to Apple showing Steve Jobs the door many years ago. The drama includes Altman taking a position to run a new AI division at Microsoft and more than half of the OpenAI staff saying they will follow Altman to Microsoft unless the current board of directors resigns. This sort of thing has the potential to drive stock prices up and down. Which brings us to the point. Are there tradable aspects of AI as opposed to trying to get in on the ground floor of a growing industry?
Can You Buy OpenAI Stock?
No, you cannot currently buy OpenAI stock. It is a private company. Microsoft has a 49% stake in the company so the closest one can currently get it is to buy shares of Microsoft. Should OpenAI go public one could purchase shares of its IPO or initial public offering. Meanwhile, folks wanting to invest in artificial intelligence can look to Microsoft, Google, or Amazon.com if they want a secure investment with upside potential from AI. However, there are many other companies in this field that have not gotten the publicity OpenAI has received. C3.ai, Palantir, PROS Holdings, Phreesia, and Okta are just a few. There are lots of companies applying artificial intelligence to specific business and scientific niches. And there are ETFs that invest in stocks in this niche.
What Drives the Value of AI Stocks?
It is useful to think of AI stocks like you do startup pharmaceutical companies. They have a great idea and may indeed develop a great product. If they do, the company will soar in value as will its stock price. If it fails to create a blockbuster product the stock will languish and even disappear. It is also useful to remember the dot com craze when investing in or trading AI stocks. There are those of us who remember how all you needed to get folks to buy your stock was put dot com in the name. We are seeing the same thing today with AI. There will come a time when this niches sorts itself out. When that happens the companies that make useful AI products and services will prosper and those that are all hype will fizzle and die.
Trading AI Stocks
To a large degree, AI stocks are immune to the effects of interest rates and the economy. Folks are betting on the next big thing and not slow price appreciation or quarterly dividend checks. Thus, these stocks are likely to jump up and down according to the news. The more press that they can get, the more the stock price will go up. However, if the economy tanks and the market collapses, then folks will flee risky investments and buy Coca Cola, Clorox, Alphabet, or Microsoft. The tricky bit for long term investors is knowing which of these will succeed and rise to the top of the pile. The tricky bit for traders is to know when to get in and when to get out of stocks whose prices are so strongly connected to the news and hype of the day.
Who In AI Will Get Bought Out?
When somebody comes up with a great new tech idea they are commonly not someone working for Google or Microsoft. Rather they are working independently. Then there comes a point where they need more money to take their idea to the next level and create a profitable business. Here is where a company sells stock and is available via an IPO. This is where a person has the first shot at the stock or options on that stock. Prices can soar around the time of an IPO but options trading is not immediately available. The next time when impressive gains can be made is when a big company like Alphabet, Microsoft, Meta, etc. steps in and makes an offer. In order to make this worthwhile for the current stockholders this usually means a big increase in share price. Traders who can time these events can profit handsomely.
Trading Options In a New Business Niche
All of this may be interesting, but can it be profitable. Making money trading options works better when you work with an experienced trading squadron like at Top Gun Options where we potentially profit in up, down, and sideways trading markets. Experience helps in knowing how to trade options in a new niche like AI.