There is 'much more' to generative AI than chatbots: Strategist

The tech sector has pushed the S&P 500 (^GSPC) to new heights this year as it continues to beat earnings expectations amid a heated AI race. However, BCA Research chief US equity strategist Irene Tunkel believes that the market is experiencing a tech bubble and joins Catalysts to discuss how investors should navigate it before it pops.

Tunkel says that the market is "richly valued." However, without the "Magnificent Five," the rest of the market will likely not deliver significant growth. "So you really need these top stocks to perform and to justify the market. But they have gone up so much... sometimes you just have to put profits on your books," she explains.

For investors who want to get in on the AI play without investing in overvalued companies, Tunkel highlights how the technology is being used to find efficiencies. She points to Apple (AAPL) as an example, as the company is leveraging AI "to make devices incrementally better." However, she notes that it is an "evolutionary change," and the impact of AI will take longer to be recognized.

She believes that the technology will transform the healthcare, aerospace, and defense sectors, and as chips become much smaller and more customized, there are endless opportunities: "There is so much more to generative AI than chatbots."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

Video Transcript

Yeah, if it is indeed a bubble, and some people are going to start to take profits to try and get ahead of that bubble bursting.

What type of rotation do you think we might see?

And also a reset of valuations, too?

Yes, the market is kind of richly valued.

And again, you can say that.

Well, there is a QC because there is the magnificent five or six or whatever you basically qualify and everyone else.

But I think that even if you strip off the magnificent five, the rest of the market is not as expensive, but they are not going to deliver so much growth, either.

And so you really need the stock stocks to perform and to justify the market.

But they have gone up so much, and it can be just profit taking, just like we have seen the technical corrections and nothing really happened.

But sometimes you just have to put it on your books, and this morning and video is down a little bit off of an upgrade.

I mean, it's just, you know, the start of the second half of the year.

Maybe some worries about concentration.

Having said that, where do you see the biggest opportunity for investors who do want to get in on a I but don't want to invest in companies that are perhaps overvalued?

Well, I think that, you know, every new technology cycle goes from infrastructure, and you know this overused word, you know, term picks and travels, and then you move to applications and then you move to the real companies that are trying to adopt these new technologies for their for their businesses.

And I think that what we are, you know, focused a lot now is companies that can use this generative a I to cut costs to improve their supply chains.

And even Apple is a case in point.

What they are doing is kind of going to make devices incrementally better.

But it's evolutionary change, I think, where we need to look for the impact of a I and it may take longer.

It may be more expensive, is revolutionary and that will be in health care.

It will be in our space and defence.

It can be in fintech.

So I think that the next phase of this transition of the generative transition is to look, where can we actually see this new technology completely changing the playing field and the rules of the game.

How concerned are you about those exact companies doing a one time investment into a I and then stopping that Capex or capping it?

You mean the companies that are developing this revolutionary sort of changes?

The company is utilising the A. I like a health care company.

For example.

I think that they will be investing in a I just to maintain, but I think it really will be a big shift forward to build out the infrastructure.

And actually, it may be a little bit different than they expect.

A. I models are getting smaller and smaller and much more customised, so maybe you can use less powerful chips.

Maybe you can spend a little bit less on them.

But I think that on the long term effect will be much more pronounced than what we see with the Magnificent five.

Because we are just talking about chatbot.

But there is so much more to generate a than chatbots