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Retail investors flock to small-cap AI firms as Big Tech battles for share

Retail investors are piling into small-cap firms that are into building artificial intelligence tools as companies including Google-parent Alphabet and Microsoft jostle to pull ahead in the race for the next big growth driver.

The viral success of ChatGPT has turned the spotlight on AI on Wall Street, reminiscent of the blockchain hype from a few years ago when shares of companies remotely associated with the technology surged.

The $3 billion AI software firm C3.ai was the fifth most actively traded on Fidelity’s platform for small investors on Monday, while drawing record daily retail inflows worth $31.4 million, as per Vanda Research. The stock fell 14.7% on Tuesday, although it is up about 140% so far this year.

“Small-cap firms have AI as a much larger part of their business than the larger ones,” said Matthew Tuttle, chief executive officer of Tuttle Capital Management on the reason behind retail investors’ focus on the smaller firms.

Tuttle said he had shorted C3.ai shares about a week ago, but was looking to switch to the long side because “that’s where the action is.”

Shares of SoundHound AI, which offers voice AI platform services, and Thailand’s security firm Guardforce AI have more than doubled in value so far this year, while those of analytics firm BigBear.ai have seen a nine-fold rise.

SoundHound AI was last down about 14.9% and BigBear.ai fell 18%, while Guardforce AI slipped 3%.

Shares of Microsoft, which backs ChatGPT parent OpenAI, gained about 2.4% after the tech giant said it was revamping its Bing search engine with AI such that users will be able to chat with the search engine naturally.

The new Bing chatbot will help users refine queries and even draft and translate emails, with the company calling Bing the “AI-powered robot for the web.” US News

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