The conversation around artificial intelligence (AI) is mainly centered around large language models (LLMs) like ChatGPT from OpenAI, however, startups within the emerging market are yet to tap into the buzz, with their popularity significantly suppressed.
According to a recent report by Crunchbase on public AI-focused startups, the stock market is yet to start tapping the hype around this innovative technology.
Interest in AI-centric companies which conducted their initial public offering (IPOs) a few months before the industry exploded to its peak has not picked up the pace.
Using Crunchbase data pro, analysts at the company that closely monitors early-stage startups to established Fortune 1,000 firms, considered at least 10 organizations that have recently gone public on the United States stock exchanges.
Shares of Publicly-Traded AI Startups Performing Dismally
Although these publicly-traded companies offer distinct services in the AI field, like SoundHound with AI voice, UiPath with its business automation software and Disco which leans toward legal discovery, one common feature the report highlighted is that their current share prices are a pale picture of the value they had at the end of their IPOs.
The valuations of nine companies studied by Crunchbase revealed a worrying trend, as they had in total lost $50 billion from the time they debuted on the exchanges compared to their prevailing market caps.
Two of the AI-centric companies, Berkshire Grey and Zymergen, as observed in the chart were not considered because they had been sold.
Why Are AI-Focused Companies On a Downturn
Many would have expected the hype around generative AI, which has taken the world by storm to positively impact the valuations of artificial intelligence-focused firms. However, that has not happened, at least not yet.
As per another report by Zephyrnet on the current state of AI-focused startups, the high level of competition in the field is one of the major factors contributing to their dismal performance.
Large corporations such as Microsoft, which has a multibillion investment in OpenAI, and Google have over the years invested in research and development (R&D) in AI, a situation that increases the barriers to entry for startups.
Similarly, AI-oriented startups are falling behind their counterparts due to the complexity of the underlying technology.
Investors in the stock market tend to be picky with the stocks they choose with some sidestepping artificial intelligence startups. Many also struggle to grasp the technology these companies back and quickly perceive them as being too risky.
Other investors still shun investing in AI due to apprehensions regarding the ethical implications of artificial intelligence as a technology. Billionaires like Elon Musk have called for caution on the use of AI, saying that it could go really wrong.
Additionally, there are reservations over the application of AI to business processes amid fears of technology taking over jobs and replacing people.
If not used in the right way, AI can be trained with data that supports certain biases in society, which in turn negatively influences decision-making.
Is It That Bad For AI-Centric Startups?
Despite the massive losses in terms of market valuations, the situation according to Crunchbase is not entirely bad. It is prudent to consider the time these startups conducted their IPOs, which for most of them, was at the peak of the tech boom in 2021.
Tech stocks at the time were at their all-time highs and as such their original valuations were heavily inflated.
One notable instance to mention is UiPath, a company specializing in robotic process automation, which had its Initial Offering (IPO) in April 2021, successfully raising $1.3 billion. UiPath is currently valued at $8.4 billion backed by sales of more than $1 billion in the last financial year.
Additionally, C3.ai, a firm focused on enterprise artificial intelligence software, made its public debut in December 2020, garnering an impressive $651 million in its IPO. C3.ai boasts at least $3 billion in market capitalization.
Is The AI Market Overhyped?
While the hype around artificial intelligence has brought fortunes to multinationals like Microsoft, the same has not trickled down to startups that went public in the last three years.
At the same time, Crunchbase data was not extensive enough either to answer this question exhaustively. For instance, we cannot tell if these companies back quality technologies. If they are slightly behind, it might be difficult to compete with larger organizations like Microsoft and Google.
In general, it might be too early to make certain conclusions on AI-focused startups which might be spending time building new products following the explosion around generative AI.
Moreover, investors can still tap the many opportunities coming up in the AI space, and eventually change the narrative for publicly traded startups in the industry.
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