-
Investors are concerned about the quality of data used by artificial intelligence (AI) companies and their data security measures.
-
Valuation risk is another potential issue, especially with some AI stocks trading at high P/E ratios.
-
Don’t let expensive valuations stop you from investing – many AI companies have strong businesses generating record revenue.
-
10 stocks we like more than Nvidia ›
Despite talk of a possible bubble, investors are largely optimistic about artificial intelligence (AI) technology. Nearly two-thirds (62%) of respondents to The Motley Fool’s 2026 AI Investor Outlook Report said they are confident that companies that invest heavily in AI will see strong long-term returns. Those who already own AI stocks and ETFs are even more confident: 93% expect strong returns from AI companies.
However, investors have several concerns about investing in AI companies. There are two issues, in particular, that they fear most.
The biggest risk associated with investing in AI is the quality and security of AI companies’ data, with 49% of investors citing this as a concern. This is a multifaceted issue that encompasses how companies train their AI models and what they do with their data.
AI models are only as accurate as the data used to train them. A model trained on low-quality data is more likely to produce AI hallucinations: answers that sound safe but are actually inaccurate. If you’ve used AI tools extensively, you’ve probably experienced it firsthand. AI hallucinations can have serious consequences, especially as more and more companies rely on AI in their daily operations.
AI companies manage massive amounts of data, including their training data and information from user interactions. There are privacy concerns regarding how these companies store and use this data, and this also makes them a target for hackers.
Technology valuations have received a lot of attention recently, with 43% of investors expressing concern about the risk that AI companies are overvalued.
The figures seem to confirm it. He Nasdaq-100a high-tech index, it has a price-to-earnings (P/E) ratio of 38 (as of January 9). Looking at some of the big names, NVIDIA (NASDAQ: NVDA) currently trading at 46 times trailing earnings, microsoft at 34 times final earnings, and Palantir Technologies at a staggering 415 times trailing earnings.
Keep in mind that many AI companies are innovative and fast-growing companies, which is why they trade at higher valuations. If you just check Nvidia’s P/E ratio, it looks expensive. But it’s also a company that has achieved 12 consecutive quarters of revenue growth, most recently reaching a record $57 billion, and that has $500 billion in orders for its Blackwell and Rubin systems through the end of 2026.