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2023 will be known as “the year of artificial intelligence (AI).”Though AI has been in development for a long time, this year was the first time the average person found out just how amazing it can be.ChatGPT showed the world how easy it is for a program to create content that looks like something a real human would produce.And it set off an arms race to develop better AI programs.The tech companies leading the charge – Apple (), Amazon (), Google (), , Microsoft (), Nvidia (), and Tesla () – were responsible for most of the market’s gains this year.And seeing their success, many companies on Wall Street started talking about how they’re making or using AI to improve their businesses.But while some may be legitimately making AI a part of their business… There are also many that are just using “AI” as a buzzword to increase investor interest.Just like how many companies talked about “blockchain” a few years ago. Or “.com” in the late 1990s…Today, I’ll show you why you shouldn’t blindly gamble your money on every company that says it’s working on or working with AI. So you’ll know whether an investment in AI actually has the potential to make you money as the technology grows.
Not Every AI Is Real
The restaurant industry depends on a lot of low wage workers to provide labor and customer service.After the pandemic, workers started demanding raises and states started increasing minimum wages. That meant restaurants earned less money.So they started looking for ways to automate their business with AI.One idea was to use AI to take orders from customers going through the drive-thru.And soon after this idea got traction, a company called Presto Automation (PRST) claimed to have an AI that could do the job.But it was a little too good to be true.In July, the Securities Exchange Commission (SEC) revealed it was investigating the company’s AI technology claims.Recent filings showed that the company’s “AI” was only able to handle about 30% of the drive-thru orders that it got… The other 70% were sent to “off-site agents” in countries such as the Philippines to correct the orders the AI couldn’t figure out.Oops.And this is just one example.
The SEC Warns Businesses Against “AI Washing”
The number of companies talking about AI during their earnings reports has more than tripled over the past year, as you can see below.
That has regulators concerned that companies are using the hype and buzz around AI just to draw in customers and investors. But their actual involvement could be minimal – at best.Earlier this year, the Federal Trade Commission (FTC) warned companies it’s on the lookout for false AI claims in advertising.And recently, Gary Gensler, chair of the SEC, warned businesses against “AI washing.” That refers to making false claims about artificial intelligence, similar to “greenwashing” companies making false claims about environmental sustainability.According to securities laws, companies aren’t allowed to make phony claims. In fact, they have to give “full, fair and truthful” disclosures.In the rush to use AI, many companies are glossing over the details and misunderstanding what the AI programs they are implementing are really capable of doing.
Don’t Blindly Trust – Verify
While AI technology is advancing quickly and producing amazing results, it’s not magic.And you should be wary of companies trying to dazzle you with lots of hand waving and fancy words.Before you put your money into a company talking about AI, ask yourself these questions:
It may not.Because at the end of the day, what investors should care about most is the bottom line – earnings.That’s what creates value and allows companies to reward shareholders with dividends.Don’t blindly trust – verify. That’s the key to investing intelligently… and keeping your capital safe when flashy new technology or trends become the latest wealth-builders.More By This Author:
