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THE HYPE SURROUNDING artificial intelligence has meant the industry has got powerful backing and, with OpenAI saying it’s to go public, soon small-time investors will be able to get a piece of the pie.
If the company’s founders, which include Elon Musk and Stripe alum Greg Brockman, are to be believed, AI will one day be baked into every aspect of society, from work to healthcare.
OpenAI burst into the mainstream with the launch of ChatGPT in November 2022. Its operations are currently funded by founders, angel investors and venture capital firms.
After its last funding round, the company was valued at $852 billion (€738.37 billion) after its latest funding round.
This week, OpenAI filed for initial public offering (IPO), which could catapult the valuation into the trillions.
For the first time, ordinary investors will be able to buy a slice of the company.
Once a company goes public, it sells shares to the primary market, which includes large institutional investors such as pension funds. They’ll then sell them to the secondary market, which are individual investors.
Dan Malone, a financial adviser and founder of honest.ie, spoke to The Journal about whether Irish investors should try to get in on the ground floor of OpenAI’s next phase.
Stock prices aren’t just based on a company’s performance and assets. They’re highly-influenced by its perceived potential.
“The higher the expectations are for future earnings, the higher the stock price will be,” Malone explained.
“The issue is the future is obviously uncertain, and if those expectations turn out to be worse than anticipated, that’s when stock prices start to tumble.”
So, what should be considered before investing?
The popularity of the industry is ultimately irrelevant.
“All that matters is what is the price that you’re actually paying to own this business, and is that a fair price relative to what it currently owns now, and what it will earn in the future,” Malone said.
OpenAI CEO Sam Altman recently remarked that artificial intelligence could be in a market bubble, comparing it to the dot-com boom of the late 1990s and early 2000s.
So, will it burst?
“It’s really hard to say.
“People’s enthusiasm for the earnings potential of AI in the future might need a bit of a reality check,” Malone said.
“We don’t know how profitable these companies are going to be in five or 10 years’ time. We can only make our best guess, and right now the best guess is really, really optimistic.”
Malone strongly advises against investing in individual companies, because it’s not as simple as backing what’s trending.
To take a calculated risk, an investor would need to analyse a company’s financial statements and make cash flow projections for years to come.
He said people could invest a very small amount of cash in OpenAI “for fun”, but if they expect significant returns, they’ll be “sorely disappointed”.
“I suppose the sexy new IPO is a lot more attractive than regular old consistent investing for 10 years,” he said.
Humans love the old gamble, and the chance of making a lot of money quickly.
Instead, Malone recommends index funds and reliable trading apps to help investors spread out the risk.
They allow users to invest in index funds, which hold small shares of many companies. This means that if one company falls in valuation, not all is lost.
While there are risks with any investment, index funds are less volatile than individual shares.
Platforms such as Trading212 and Trade Republic are user-friendly and have low fees, Malone says.
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