Daily Management Review

Retail Investors Are Flocking To Small-Cap AI Firms While Big Tech Competes For Market Share


Retail Investors Are Flocking To Small-Cap AI Firms While Big Tech Competes For Market Share
Retail investors are pouring money into small-cap companies developing artificial intelligence tools, as companies like Google parent Alphabet and Microsoft compete for the next big growth driver.
The viral success of ChatGPT has focused Wall Street attention on AI, reminiscent of the blockchain hype a few years ago, when shares of companies remotely associated with the technology skyrocketed.
According to Vanda Research, the $3 billion AI software firm C3.ai was the fifth most actively traded on Fidelity's platform for small investors on Monday, with record daily retail inflows of $31.4 million. The stock fell 14.7% on Tuesday, despite being up nearly 140% this year.
"Small-cap firms have AI as a much larger part of their business than the larger ones," said Matthew Tuttle, chief executive officer of Tuttle Capital Management on the reason behind retail investors' focus on the smaller firms.
VEON, a mobile operator, receives regulatory approval for a sale in Russia, lifting its stock.
Tuttle stated that he had shorted C3.ai shares about a week ago, but that he was looking to go long because "that's where the action is."
Shares of SoundHound AI, which provides voice AI platform services, and Thailand's Guardforce AI have more than doubled in value this year, while BigBear.ai shares have increased ninefold.
SoundHound AI was last down about 14.9%, BigBear.ai was down 18%, and Guardforce AI was down 3%.

Shares of Microsoft, which backs ChatGPT parent OpenAI, rose 2.4% after the tech giant announced that it was revamping its Bing search engine with AI, allowing users to chat with the search engine naturally.
The new Bing chatbot will assist users in refining queries as well as drafting and translating emails, with the company referring to Bing as a "AI-powered robot for the web."
Alphabet announced on Monday the launch of Bard, a chatbot service, as well as additional AI tools to power its search engine.
According to Barclays analyst Raimo Lenschow, Microsoft is in a strong position in the AI race due to its close partnership with OpenAI and Azure capabilities in compute and data.
"If you're investing in AI, you should consider the fact that these smaller companies are competing against Goliath, and Goliath has the scale, efficiency and capital to own the space," eToro analyst Callie Cox said, adding there has been a lot of interest around AI lately.
Baidu Inc's US-listed shares rose 9.9% on Tuesday after the Chinese search engine announced that it would complete internal testing of a ChatGPT-style project called "Ernie Bot" in March. Earlier in the day, a slew of Chinese AI stocks surged.
"The market is right now trying to search for what would the next big thing that's going to lead markets over the next 10 years and AI is that," said Chen Zhao, chief global strategist at Alpine Macro.
"It could be speculative in nature, but everybody thinks that it's going to be a big deal going forward."