The wave of generative artificial intelligence (AI) sparked by the launch of ChatGPT has made Nvidia the leading stock in AI in 2022. And from there, the race to introduce AI began. Testing the waters, companies began investing billions of dollars in AI data centers, network communications, and large-scale language model (LLM) training. In 2023, several small- and mid-cap tech stocks rose as the AI code was cracked.
Big technology companies like HCL Tech, Tech Mahindra, TCS, Tata Elxsi witnessed a 20-30% spike in 2023 and further seasonal spike in 2024. But how much of this surge is due to AI? This is where AI investing comes in.
AI is a concept that has been discussed and researched for decades, and is now finally being introduced into commercial applications. There’s no doubt that AI is dramatically changing the way we live and consume data, but is it still too early to invest in AI stocks?
Find your AI ROI
Given what we learned from the dot-com bubble of 2000, when investors flocked to any business that uses the Internet, investing in something without understanding the potential for return could come back to bite you. . Therefore, investors slowed down their investments in AI in 2024 and started wondering where the ROI (return on investment) was.
If you think this is an Indian-only phenomenon, think again. Even the NASDAQ tech giants are asking the same question: “Show me the ROI.”
OpenAI, the company behind ChatGPT, is expected to report a loss of $5 billion on revenue of $3.7 billion, according to a New York Times article that reviewed the company’s financial statements. According to a Reuters report, Microsoft, OpenAI’s largest shareholder, plans to use both internal and external AI models for Microsoft 365 Copilot to reduce costs and diversify OpenAI’s current underlying technology. It is said that there is.
This is a strategic move by Microsoft. As an investor who invested $14 billion in OpenAI, Microsoft is now demanding an ROI. The buzzword has moved from generative AI to artificial general intelligence (AGI). According to Microsoft, artificial general intelligence is a system that can generate $100 billion in profits. Microsoft 365 Copilot has not yet proven its value to enterprises. But the software giant, which discovered the potential of the public cloud early and generated billions of dollars in profits, is now looking to profit from AI.
The question is: How can AI create value for companies and benefit investors? According to McKinsey & Company Survey 2022, AI can create value across a variety of functions by reducing costs or increasing revenue. For example, AI can add value by helping improve marketing and sales revenue, and aid supply chain management by reducing costs.
Reduce costs and increase revenue with AI implementation, by function, 2021. (Source: Stanford University Artificial Intelligence Quotient Report 2023)
What can AI do?
Generative AI is a system that can convert human language – text, audio, and visuals – into machine code, analyze the data, and provide desired output in the form of text, audio, and visuals.
AI collates data, analyzes patterns, uncovers inefficiencies, and predicts outcomes to help make smarter decisions. Manage industrial robots, drive trucks, help design products, interpret MRI scans and X-rays, and provide better service.
For AI systems to work efficiently, they need to be trained with huge datasets and millions of parameters to get better outputs. India has a wealth of unused data collected through digitization. The key challenge is to make that data AI-enabled and have the computing power to process it.
Training AI models is expensive and requires large investments in the initial stages. Jeetu Patel, Cisco’s chief product officer, said in a blog post that more than $200 billion has been spent training modern language models. However, only 10% of this is realized in global profits, and that’s just a small number of companies. While some companies have a clear AI strategy, many are less clear but recognize that they need to execute their strategy quickly.
And therein lies the basis of AI investment.
Is India ready for AI stocks?
According to Cisco’s AI Readiness Index 2024, across the six pillars of readiness, Indian companies are outperforming in terms of strategy and talent readiness. However, gaps remain in infrastructure, data, culture, and governance readiness.
ROI of AI infrastructure
So far, the only stocks that have benefited from the AI boom are semiconductor and data center companies. This is due to the influx of funds into AI infrastructure. From Microsoft to Reliance Industries to TCS, all large companies are purchasing Nvidia’s graphics processing units (GPUs) to build data centers capable of handling AI computing. This flow of capital is leading to investment in building AI-enabled infrastructure, and semiconductor stocks are booming. In India, Moschip Technologies and Netweb Technologies benefited from this money tracking.
Netweb designs and manufactures high-performance computing solutions. The company’s order book has increased from Rs 994 million as of June 30, 2023 to Rs 3.7 billion as of September 2024 (2nd quarter of FY24). Revenue from AI Systems increased 229% year-over-year and contributed 14.8% to Q2 2024 revenue. The company launched an IPO in July 2023 to capitalize on the growing interest in AI, raising Rs 631 million. In FY24, sales and net profit increased by more than 60% due to order execution.
Netweb Technologies stock price momentum since IPO (July 2023)
Source: Trading View
However, while Netweb’s stock price also soared 189% in the year following its IPO, growth has since plateaued, with the stock price increasing only 8.9% from July 26, 2024 to January 10, 2025. . One possible reason is that the stock trades at a price-to-earnings (PE) ratio of 151x, well above the industry median of 59.9x. Another reason could be seasonal weakness in the first half. Interestingly, Foreign Institutional Investors (FIIs) increased their stake in the company from 9.69% in 2023 to 12.13% in September 2024 quarter.
Mochip Technologies’ stock price followed a similar growth momentum, rising 255% from July 2023 to July 2024 before falling 29%. As companies expand and upgrade their AI infrastructure, these two stocks could see a cyclical rally.
The next stage of ROI lies in AI adoption
With a dream of becoming an AI-first nation and ramping up its digitalization efforts, India is embracing AI. But the question is, how can AI generate ROI for businesses?
Like most tech stocks, AI is also very competitive. LLMs can become obsolete in the blink of an eye. According to media reports, China’s latest AI model, DeepSeek, seems to be overwhelming ChatGPT in terms of both performance and cost. Businesses are looking for cost-effective AI models that can generate profits.
India needs customized AI that can meet its needs for accessible, affordable and quality healthcare and education, and improve agricultural productivity. and AI that can develop smart cities and solve traffic and congestion problems. Many AI startups are working on these areas.
Fractal Analytics is one such startup. Crux Intelligence for business intelligence, Eugenie.ai for sustainability, Asper.ai for revenue growth management, Senseforth.ai (conversational AI for customer service), and Flyfish (generative AI for sales) We provide AI solutions such as Its latest solution is Qure.ai, which uses AI to detect tuberculosis and lung cancer. We serve Fortune 100 and 500 companies including Google, Wells Fargo, and Reckitt Benckiser. Fractal Analytics has evaluated IPO potential twice, in 2021 and 2024. We are likely to see many such AI IPOs in the coming years.
Investment case in India
Big IT companies like Reliance and Tech Mahindra have launched AI strategies. But the question is, are they making money with AI?
AI is still a new industry and will take 5-8 years to start producing the desired benefits. This is like investing in Zomato in 2011. In addition, strict regulations can further increase volatility. But AI is a tricky area, as companies do everything they can to make it work.
As an investor in future technology, there are two things you need to focus on:
The product/technology is in demand now and has the ability to expand in the future. The company has a robust product roadmap and strong execution capabilities.
Indian tech stocks are enjoying demand momentum. AI infrastructure companies like Moschip and Netweb already have huge orders, which has a direct impact on their bottom line. The next stage of AI growth will be determined by how well companies can monetize their AI strategies.
If you can crack this code and generate profits, you could see exponential growth and become a trendsetter. This may attract early investors with a long-term investment horizon. But before you jump on the AI bandwagon, be sure to consider your company’s roadmap.
This is just the beginning of India’s AI story. It remains to be seen how India’s AI ecosystem will develop and generate ROI for retail investors.
Note: This article relies on data from http://www.Screener.in. Widely used and accepted alternative sources of information were used only when data were unavailable.
Puja Tayal is a financial writer with over 17 years of experience in basic research.
Disclosure: The author and his dependents do not own any stocks discussed in this article.
The website administrator, its employees and article contributors/writers/authors are responsible for any outstanding buying or selling positions in the securities, security options or other related investments of the issuers and/or companies discussed therein. Holds or may hold holdings. The content of the article and the interpretation of data are solely the personal views of the contributor/writer/author. Investors should make their own investment decisions based on their specific objectives, resources, and if appropriate, consult independent advisors.
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