Since the launch of ChatGPT in November 2022, the value of Asian companies exposed to artificial intelligence has increased by 30%. However, HSBC warns that investors should consider three major risks before investing in AI stocks: disappointing demand, increased competition and regulation. “For investors and entrepreneurs, there is nothing more exciting than discovering a potentially large market for new products and services,” said strategists at the bank, led by Herald van der Linde. In a May 4 note to clients, the strategists drew on historical examples of “big market stories” such as e-commerce in the late 1990s and China Mobile in the mid-2000s to illustrate their point. They added that these strong stories drove the stock price up, but eventually prices fell back due to various factors. In some cases, such as Li Ning’s shoes, the aftermath of the Beijing Olympics led to disappointing demand and growth. As a result, the stock fell 85% over the next three years, after rising 150% in the two years leading up to the Olympics. Regulations also play a crucial role, according to HSBC. “There are probably a lot of government regulations and guidelines around the world designed to protect personal data and specify how that data is used in AI models,” van der Linde said. For example, China’s recently issued guidelines call for mandatory evaluations before any AI product goes live , which resulted in an average 8% reduction in affected names. More specifically, shares in security software developer 360 Security Technology fell 10% after the announcement of the new rules. Finally, HSBC says momentum is critical when it comes to the “big market” story. Trade sanctions between countries such as the U.S. and China could have a big impact on stock prices of domestic companies if doubts about monetization arise or geopolitical concerns intensify. After laying out its framework, HSBC also lists the following AI-exposed stocks that its analysts cover. — CNBC’s Michael Bloom contributed to this report.