Asian companies exposed to artificial intelligence have seen a 30% increase in value since November 2022 — when ChatGPT was unveiled. However, HSBC has warned that investors should consider three significant risks before investing in AI stocks: disappointing demand, increased competition, and regulations. “Nothing is more exciting for investors and entrepreneurs than discovering a potentially huge market for new products and services,” said the bank’s strategists led by Herald van der Linde. The strategists borrowed historical examples of “big market stories,” such as e-commerce in the late 1990s and China Mobile in the mid-2000s, to illustrate their point in a note to clients on May 4. They added that these powerful narratives pushed stock prices up but eventually saw prices come back down due to various factors. In some cases, like Li Ning’s shoes, it resulted in disappointing demand and growth after the Beijing Olympics. As a result, the stock fell by 85% over the following three years, having rallied by 150% in the two years leading up to the Olympics. Regulations also play a critical role, according to HSBC. “There’s likely to be a lot of government regulations and guidelines around the world aimed at protecting personal data and specifying how it can be used in A.I. models,” said van der Linde. For instance, China recently released guidelines requiring mandatory assessments before any A.I. product goes live, which caused an average decrease of 8% for affected names. More specifically, shares of security software developer 360 Security Technology dropped by 10% after the new rules were unveiled. Finally, HSBC said, momentum is crucial when it comes to “big market” stories. If doubts about monetization arise or geopolitical issues intensify, trade sanctions between countries like the U.S. and China could significantly impact domestic players’ share prices. Having laid out its framework, HSBC also named the following stocks exposed to artificial intelligence that their analysts cover. — CNBC’s Michael Bloom contributed to this report.
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