We began reflecting on the most taught and attended university courses in the United States and immediately found the number of Artificial Intelligence (AI) courses has skyrocketed in popularity across top Universities. This made us wonder about the significance of AI among American youth as well as its prevalence in the financial markets.
First, we see AI revenues for enterprise applications rise the more US universities take interest. This may illustrate the growing significance of AI within our society while also educating us on the concerns of AI within the workforce. AI chatbots (especially ChatGPT) are extremely popular with American youth as it can do a lot of the work for them. As Bill Gates once said, “Choose a lazy person to do a hard job because that person will find an easy way to do it”. Even though this quote may not be completely accurate, it illustrates, at least in part, the appeal AI has for investors.
Over the previous year we have seen the impressive rise of AI in the form of Chat functions, AI imagery and even AI business models. The rise of AI stocks and ETF’s is mostly due to its ability to revolutionize different industry sectors while showcasing its potential for growth. The boundless potential and value of AI across different industries is attracting investors. Moreover, the media attention AI has received further highlights its value. We continue to see more and more investors include AI stocks and ETFs in their respective portfolios. In addition, recent technological advances have allowed AI to analyze large sets of data at an extremely high level of efficiency leading to market euphoria. The US military has also joined the AI explosion which further increases its legitimacy and prevalence.
Looking at the markets, we see recent interest in AI and its technological advancements reflected in its market price. Large-cap stocks such as Tesla, Microsoft and Apple that have started to research and utilize AI have seen constant returns in their stock prices Over the past year, the stock price of Apple has risen over 28% and the stock price of Telsa has risen over 18%. These leaders in AI innovation are constantly improving as the tech industry continues to grow. While these large cap stocks do not encompass the AI industry completely, we do believe that it paves the way for both small and mid-cap stocks.
As we have seen most recently, the Nasdaq 100 has risen over 30% in 2023 which may give investors hope for the future of tech stocks and ETFs. One stock that has emerged in the AI space is Alteryx (AYX). Alteryx is responsible for the creation of OpenAI and ChatGPT. Microsoft has invested 10 billion USD into Alteryx to improve ChatGPT which further highlights its growing potential and financial backing. With the recent release of ChatGPT-4 and its growing ability to analyze large pieces of data it will be interesting to see how markets will react to a stock like AYX as the American population sees it potential and learns how to utilize it across different industries. AI has already shown itself to be the next trend in the technology sector and could add value in markets and perhaps industries such as financial services.
Financial Advisors Need Not Worry - Yet
Shifting from financial markets to financial advisory, the role of artificial intelligence is likely to increase in importance in the coming years. The financial advisory business is heavily relationship driven. Therefore, it appears unlikely that the financial advisor role will be completely automated; however, several tasks and back-office roles are likely at risk of being automated through artificial intelligence.
Financial situations are often complex, generally requiring the expertise or input of several skilled professionals. While artificial intelligence may be better able to provide technical expertise and crunch numbers, navigating complex ordeals such as retirement, market volatility, and life events requires trust, expertise, and empathy which a computer program may lack. As such, artificial intelligence applications will need to overcome the trust barrier to solve these and other complex issues in order to see more widespread acceptance.
The potential benefits of using artificial intelligence in a financial advisor practice include eliminating and/or automating redundant tasks, pattern recognition. communications and alerts, freeing up advisor/support staff time to work on more productive tasks, reduction in costs, and risk management/monitoring of investments.
While there are numerous benefits to utilizing artificial intelligence, several potential threats loom as well. These threats include job loss, potential inaccurate results/output, and even a loss of control in the security selection process. Speaking to the latter, some Exchange Traded Funds (ETFs) such as the AI Powered ETF (ticker: AIEQ) rely on artificial intelligence to identify and select securities with the highest probability to outperform over the next twelve months. If these products are able to beat or match the returns of active managers, human involvement may decline in the security selection process in favor of more quantitative models driven by artificial intelligence.
To effectively capitalize on the advantages offered by AI, and to allay natural fears, financial services firms may need to fundamentally reconsider how humans and machines interact within their organizations as well as externally with their investor clients and outsource partners. What is already clear is frontrunners are embedding AI into their strategic plans, focused on driving new revenue growth and improving the client experience.
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