Title: AI Stocks Facing Risks as EU Standards Are Not Met
AI stocks have experienced incredible growth and seem unstoppable. However, recent developments in the European Union (EU) regulations could put some of these stocks at risk. OpenAI, the creator of ChatGPT, actively advocated for changes in the upcoming AI regulations, and their proposed amendments were included in the legislation approved by the European Parliament on June 14th.
The EU is taking a decisive step towards establishing worldwide standards for various technologies, including OpenAI’s ChatGPT, surgical procedures, and bank fraud detection. Brando Benifei, a member of the European Parliament, referred to this as a momentous event. The draft version of the EU AI Act has been approved by lawmakers and will now undergo negotiations with the Council of the European Union and EU member states before becoming law.
However, despite these advancements, some AI stocks are still at risk of not meeting the EU’s strict standards. Companies like Google, Microsoft, IBM, and Meta Platforms have failed to comply with the regulations and could face sanctions if they don’t make the necessary changes.
Microsoft has secured a strong position in generative AI through substantial investments in OpenAI. The company has integrated OpenAI’s technology into products like the Bing search engine and Azure cloud services. With its ongoing integration of AI technology and the expertise gained through its partnership with OpenAI, Microsoft has the potential for significant earnings growth. Despite expressing support for the EU AI Act, Microsoft has called for further refinement and emphasized the need for voluntary actions by AI developers and deployers.
IBM, known for its consulting, software, and early-model computers, is also actively involved in the blockchain industry. As a legacy tech giant, IBM offers promising AI initiatives and a reliable source of passive income. The company leverages its robust IBM Watson platform to scale AI protocols across multiple cloud environments. IBM has proposed key improvements to the draft AI Act, urging EU policymakers to adopt a risk-based approach and provide enhanced clarity on high-risk AI applications.
Meta Platforms, formerly known as Facebook, has experienced remarkable stock price growth due to strong profitability, growth, and significant investments in the metaverse. However, these investments also bring potential risks. Violating AI regulations can result in hefty penalties, including fines of up to €40 million ($43 million) or up to 7% of a company’s annual turnover, whichever is higher. This surpasses the fines imposed by the General Data Protection Regulation, as Meta recently faced a €1.2 billion ($1.3 billion) penalty. The AI Act’s substantial fines serve as a clear message from legislators, emphasizing the importance of compliance.
For AI stocks that have not yet met EU standards, taking the necessary actions to comply with regulations is crucial. Failure to do so could leave them facing severe penalties. Investors should closely monitor the developments surrounding the EU AI Act and assess the potential risks and upside of these stocks.
Disclaimer: The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
