Retail investors are flocking to small AI companies while big tech fights for shares

By Medha Singh

(Reuters) – Retail investors are piling into small-cap companies using artificial intelligence amid rising competition between tech titans Google, parent company Alphabet and Microsoft to secure leadership in the next big growth driver.

ChatGPT’s viral success has put AI in the spotlight on Wall Street, reminiscent of the blockchain hype a few years ago when the stocks of companies remotely associated with the technology soared.

$3 billion AI software company C3.ai on Monday was the fifth-largest company traded on Fidelity’s retail platform, posting record daily retail inflows worth $31.4 million, according to Vanda Research .

“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, of why retail investors are concentrating on smaller firms.

Tuttle said he shorted C3.ai shares about a week ago but wanted to switch to the long side because “that’s where the action is.”

SoundHound AI, which offers voice AI platform services, and Thai security firm Guardforce AI have more than doubled so far this year, while analytics firm BigBear.ai has ninefold in value.

“We’re in the middle of a new and exciting AI arms race, and speculative investors are clearly trying to find the potential winners in the increasingly expanding cauldron of AI-related companies,” said Arthur Hogan, chief market strategist at B.Riley Wealth.

Shares of Microsoft, which backs ChatGPT parent company OpenAI, gained 1.5% in premarket trading ahead of the AI ​​launch later in the day.

Google owner Alphabet Inc said Monday it will launch a chatbot service Bard and more artificial intelligence for its search engine and developers.

Microsoft is in a strong position in the AI ​​race because of the combination of its close partnership with OpenAI and its Azure capabilities around compute and data, said Barclays analyst Raimo Lenschow.

U.S.-listed shares of Baidu Inc rose nearly 15% on Tuesday after the Chinese search engine announced it was completing internal testing of a ChatGPT-style project called “Ernie Bot” in March. Earlier in the day, a group of Chinese AI stocks had also rallied.

“There will clearly be winners and losers in the current new AI market, but it will also take time to determine how all of these artificial intelligence-focused companies plan to monetize this exciting new technology,” Hogan said.

(Reporting by Medha Singh in Bengaluru; Editing by Sriraj Kalluvila)

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