This Could Be the Biggest Risk for Artificial Intelligence (AI) Stocks That No One Wants to Talk About (Hint: It's Not Rising Debt)
Artificial intelligence (AI) stocks have been soaring in value in recent years, with Nvidia (NVDA -1.62%) leading the charge. The chip giant is worth a massive $5.4 trillion, as its products are crucial for many tech companies looking to stay ahead of the competition.
The opportunities are enormous, but what doesn't get nearly as much attention are the risks. It's not just the debt that many tech companies are piling on that is a concern, but as AI advances and tech is doing more for people and businesses than it did before, there are also significant risks related to automation. What could derail AI stocks is the risk that AI agents pose to both the companies that develop them and the customers relying on them.
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There have already been multiple warning signs related to AI agents
There have been multiple reports about AI agents not staying within their confines, which is a growing issue in the tech sector. One of the most high-profile events included OpenAI agents launching a cyberattack against Hugging Face a few months ago. The company is now facing a lawsuit due to that.
There are multiple issues stemming from this type of risk. First is the obvious one -- a company can face high legal costs if its agents go rogue and cause harm. In addition, OpenAI will need to spend more time and money to develop agents more carefully to ensure the risks are minimal in the future. And even then, there may still be concerns if it has done enough.
The second issue is that companies may be less willing to deploy agents if there is the potential for these types of situations. Even if an agent doesn't attack another company, it may still improperly use or share confidential data. If a company has to spend additional efforts on safeguarding its assets, it would make investments in AI even more costly. At a time when spending on AI is already under scrutiny, companies may balk at the idea, especially if there are doubts about the potential payoff.
The result could be a slowdown of demand, which could derail the bull story around not only Nvidia but also other AI stocks.
NASDAQ: NVDA
Key Data Points
Why investors shouldn't ignore the risks related to AI
Nvidia is a top growth stock to own, so long as the AI growth story is a promising one. But if there are any cracks in it, or if there are signs that companies are beginning to pull back on AI-related spending, that can wreak havoc on Nvidia's growth and its valuation.
Currently, the stock looks cheap as it's trading at just 25 times its estimated future profits. But that's based on analyst expectations of how it will do in the future. If those expectations unravel, the stock may not look nearly as cheap and attractive anymore, and that may be the case for many other stocks as well.
Investors should consider the risks related to AI before deciding whether to buy Nvidia or any other stock, as ignoring them could prove costly down the road.