Have you seen Nvidia’s share price? Anyone who invested in this AI stock just a year ago is smiling – it shot up a blistering 234% in the past year.
And this is not the only AI stock to have seen huge returns, the likes of AMD and Palantir have seen some significant ramp ups in share price!

Of course with any hot new trend, there is always reason to be cautious before you dive in. That’s why, I thought it would be useful to consider the potential AI risks. Today I’m going to share two you should keep in mind when investing in AI…

AI Risks #1: Oversupply of chips

Demand…demand…demand.

That’s the narrative surrounding this specific niche of AI right now.

It’s the reason why share prices in companies such as Nvidia, AMD, ON Semiconductor, etc, have boomed.

However, a recent article in The Information revealed companies using Nvidia’s specialised AI chips have become far easier to access than the previous year.

As a result, those that overbought are looking to offload some supply now.

Meanwhile, an article in the Financial Times, cited Nvidia AI start-ups as a big reason for AI chip demand and Nvidia’s stunning boost in revenues.

If this true, this self-funded demand is a big risk as it’s dependent on Nividia’s own investment spending.

Of course, we can’t take every article at face value. The best course of action will be to gauge demand via company’s AI sales and investments throughout 2024.

But one thing’s clear…

If demand for AI chips drops, it’ll smack AI chip companies whose share prices trade at exorbitant values today.

AI Risks #2: The rise of AI does come at a cost

AI uses millions of semiconductors (in the form of GPUs, CPUs, servers, a whole host of networking and data centre technology).
As AI scales higher, the power demands for those processing technologies also rises.

For example, before the emergence of AI, data centres in the US already accounted for about 3% of America’s total energy usage.

And it’s only expected to get worse as AI becomes more important and competitive.

According to the International Energy Agency (IEA), data centre energy consumption by 2026 will be double that of 2022.

That, according to the IEA, is roughly equivalent to the entire consumption of Japan.

The problem is the world is already experiencing an energy supply crunch. And energy prices continue to increase at a ridiculous pace.

One solution to this problem could lie in nuclear energy.

In fact, a few months ago, Microsoft announced its plan to use small modular nuclear reactors (SMRs) to power their AI data centres.

While I agree with this approach, you need to consider it takes time and money to build nuclear reactors.

Plus, uranium supply is already in a major deficit and could only get worse.

So, a lack of stable energy supply could slow down AI implementation affecting AI company’s future growth.

These are important risks to keep in mind when selecting your AI stocks. And as I stated at the beginning – AI chip sotcks are just one niche of the massive AI market potential. There are a whole host of AI companies who stand to profit from this exploding megatrend, you just need to make sure you have a suitably diversified selection of AI stocks.

If you, don’t yet have a slice of your portfolio in AI stocks, then you are likely to miss out. South African investor has earmarked four key AI stocks for major growth, you can get a copy of this report free here.

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