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Why the AI stock rally isn’t another meme craze, according to a top investor

The latest stock rally in companies hawking new artificial intelligence (AI) tools could be somewhat justified, one top investor said, unlike the meme stock frenzy that drove up stocks such as GameStop (GME) and Bed Bath & Beyond (BBBY) in 2021 and 2022.

According to Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income, the size of the market opportunity for AI and generally sound fundamentals of many of the companies innovating stand in contrast to the themes that drove up meme stocks — namely, increased leverage and the low-interest rate environment.

"This, I think, is something a bit different," Rieder told Yahoo Finance Live (video above), adding: "it's a pretty big evolution of where commerce is going to go."

On Tuesday, Microsoft (MSFT) unveiled a new version of its Bing search engine that runs on a beefed-up version of OpenAI's ChatGPT natural language AI tech.

"It's a new day in search," Microsoft CEO Satya Nadella said. "It's a new paradigm for search."

Microsoft's AI hype sent shares soaring 12% year to date, despite a soft fourth quarter and mixed outlook at the hands of sluggish global economic growth.

Microsoft CEO Satya Nadella speaks during a keynote address announcing ChatGPT integration for Bing at Microsoft in Redmond, Washington, on February 7, 2023. - Microsoft's long-struggling Bing search engine will integrate the powerful capabilities of language-based artificial intelligence, CEO Satya Nadella said, declaring what he called a new era for online search. (Photo by Jason Redmond / AFP) (Photo by JASON REDMOND/AFP via Getty Images)
Microsoft CEO Satya Nadella speaks during a keynote address announcing ChatGPT integration for Bing at Microsoft in Redmond, Washington, on February 7, 2023. (Photo by JASON REDMOND/AFP via Getty Images) (AI) unveiled a new set of tools in late January to support generative AI for enterprise applications. Its stock has exploded 129% this year.

The excitement has spilled over into more speculative AI names such as SoundHound (SOUN) and (BBAI), as Yahoo Finance's Julie Hyman reported.

"The question is: In some places is [the buying] overdone because people all flow into the area at once?" Rieder said. "I don't think this one is akin to what happened last year [in meme stocks]. That was clear speculation and overzealousness."

The only AI play being left out of the frenzy is the fundamentally strong Alphabet (GOOG, GOOGL).

Yahoo Finance's Dan Howley reported that Alphabet released a host of new AI-powered features for its Search, Maps, and Lens apps on Wednesday.

Yet, Google stock fell more than 7% as of afternoon trading as investors saw Alphabet as suddenly behind Microsoft in the race to add AI to search.

"Microsoft looks well positioned to gain some share with access to leading AI models/ innovation(via OpenAI), having a 'nothing to lose' starting market share and 'your margin is my opportunity' investment mindset across the broader advertising market," Citi analyst Tyler Radke wrote in a client note.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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