This ASX tech share’s rallied 16% in 2 months. Here’s why

A senior investor wearing glasses sits at his desk and works on his ASX shares portfolio on his laptop.A senior investor wearing glasses sits at his desk and works on his ASX shares portfolio on his laptop.

Most ASX technology shares have admittedly suffered in recent times, but it’s been next-level painful to own Appen Ltd (ASX: APX).

Not even long-term buy-and-hold investors have avoided the anguish. Over the past five years, the share price for the artificial intelligence service provider has crashed almost 70%.

The COVID-19 pandemic, loss of clientele, and financial downgrades have not helped the cause.

However, there’s been a ray of hope the last eight weeks, as the stock has rallied 16.2% since 20 December.

Last week alone Appen shares climbed 29% at one stage, before settling back down on Monday.

So what’s going on?

No news is good news

Shaw and Partners portfolio manager James Gerrish, on a Market Matters Q&A, had a theory as to why investors are piling onto Appen.

“There is no specific news but the unveiling of ChatGPT has put AI back in the spotlight with Appen providing the data which underpins the [industry’s] evolution.”

ChatGPT is the generative artificial intelligence chatbot that’s been grabbing headlines. The startup behind the technology is heavily backed by Microsoft Corp (NASDAQ: MSFT).

The AI engine outputs results of sufficient quality that schools and universities have sought to ban it for fear of plagiarism.

According to Reuters, ChatGPT reached 100 million monthly active users in January, which was only two months after its public release.

The rapid popularity is unprecedented. TikTok took nine months to reach 100 million users, while Instagram had to wait 2.5 years.

Appen provides human training for artificial intelligence engines, so the hype around the industry could be having a halo effect on its share price.

A secondary impact, according to Gerrish, is that the short sellers have been forced to sell to cover their positions.

“I can certainly imagine that nobody wants to short anymore after the stock’s dramatic fall from grace.”

Despite the newfound popularity among investors, the professionals are far from convinced about Appen.

According to CMC Markets, two of the five analysts covering the stock rate it as a strong sell. The remaining three only consider it a hold.

The post This ASX tech share’s rallied 16% in 2 months. Here’s why appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has positions in Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Appen and Microsoft. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

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