The Crypto Crowd Is Piling Into AI Stocks, a Possible Sign of a Bubble

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Investors have worked themselves up into a frenzy over opportunities in artificial intelligence. You can tell the froth is reaching peak levels because crypto bros are piling in with big bets on small and speculative cryptocurrencies linked to AI.

The public debut late last year of OpenAI’s chatbot ChatGPT spurred intense popular interest in the sector, as well as an AI arms race.

Microsoft

(ticker: MSFT), which backed OpenAI, is looking to use it to shake up the web search market, while Google parent

Alphabet

(GOOGL) and Chinese tech giant

Baidu

(BIDU) are launching their own chatbots imminently.

While these three companies may be positioned as the key players—alongside the likes of

International Business Machines

(IBM) and AI-exposed chipmakers like

Nvidia

(NVDA)—investors are on the hunt for smaller AI names that may deliver bigger returns. As Barron’s has noted, you have to think this feeding frenzy isn’t going to end well.

Not to be outdone, the crypto bros are following suit. Amid a wider rally in digital assets to start the year—with

Bitcoin
up 40% in a matter of weeks and many smaller cryptos, or altcoins, seeing massive spikes—those linked to AI are outperforming.

A sector index of 73 AI-linked cryptos compiled by data group CryptoSlate is up a remarkable 87% in the past seven days alone, with some individual tokens seeing even more eye-watering returns. 

Singularity NET, which facilitates monetizing AI services on the blockchain, is up 675% since the start of the year. Artificial Liquid Intelligence, which records property rights for blockchain AI assets, has rallied 500% over the same period. Fetch.ai has gained more than 200% since the beginning of 2023, an endorsement of its ecosystem’s mission to build a decentralized machine learning network.

Chock-full of AI buzzwords, the descriptions of all three of these cryptos—which now have a combined market capitalization exceeding $1.3 billion—make it understandable why investors would pile in amid the tech hype.

Crypto is know for its bubbles, and this AI-driven rally has all the screaming characteristics of one. But really, how different is the speculative crypto surge to the one gripping the stock market, where names like

C3.ai

(AI),

BigBear

(BBAI), and

SoundHound

(SOUN) have ripped higher?

Crypto tokens may be even more speculative than smaller-cap AI stocks—but the explosion of both bets is indicative of the same frenzy. Investors beware.

Write to Jack Denton at jack.denton@barrons.com