Investment advice from an AI bot

The investment advice provided by an artificial intelligence platform co-founded by Elon Musk is revolutionary but nothing that knowledgeable investors have not heard before.

ChatGPT is a new natural language artificial intelligence model developed by OpenAI.

It has the ability to generate human-like texts and holds natural conversations that are remarkable in their flexibility, detail, and well-reasoned answers.

ChatGPT managed to go viral since its release on 30 November and surged past a million users in less than a week.

OpenAI, considered a competitor to Google’s DeepMind, was founded by Elon Musk, Sam Altman, and others.

Musk resigned from the board in February 2018 but remained a donor. In 2019, OpenAI LP – the for-profit subsidiary of non-profit OpenAI Inc – received a US$1 billion investment from Microsoft.

Investment question

The AI was asked to outline the five most important investment criteria to evaluate whether a stock represents an attractive investment opportunity and what metrics can be used to measure these criteria.

This is the response it generated:

• The company’s financial health: Before investing in a company, you should evaluate its financial health. This includes looking at its financial statements, such as its income statement, balance sheet, and cash flow statement, to see if the company is generating consistent profits and has a strong balance sheet. Some metrics that can be used to evaluate a company’s financial health include its net income, earnings per share, return on equity, and debt-to-equity ratio.

• The company’s competitive advantage: You should also consider the company’s competitive advantage, which is the unique value it provides to customers that sets it apart from its competitors. A company with a strong competitive advantage is more likely to be successful over the long term. Some metrics that can be used to evaluate a company’s competitive advantage include its market share, customer satisfaction ratings, and profitability compared to its competitors.

• The company’s management: The quality of a company’s management is an important factor to consider when deciding whether to invest in a stock. You should look for management teams that have a track record of success and are aligned with the interests of shareholders. Some metrics that can be used to evaluate a company’s management team include its track record of success, the amount of ownership the management team has in the company, and its alignment with shareholder interests.

• The company’s growth potential: Investing in a company with strong growth potential can be a good way to generate returns over the long term. You should look for companies that are expanding into new markets or developing new products or services that could drive future growth. Some metrics that can be used to evaluate a company’s growth potential include its revenue and earnings growth rates, its market share, and the potential for expansion into new markets.

• The company’s valuation: The valuation of a company’s stock is another important factor to consider. You should look for stocks that are trading at a reasonable price relative to the company’s earnings, dividends, and other fundamental metrics. Some metrics that can be used to evaluate a company’s valuation include its price-to-earnings ratio, price-to-book ratio, and dividend yield.

The Verdict

While the power of this AI lies in how it formulates and presents answers in a user-friendly format and its natural language capabilities, the content of the answer for this specific use case is generic.

The criteria form a good framework that can stand on its own for evaluating investments, but these criteria are already well known to most investors, excluding perhaps beginners.

The AI likely simply aggregated the answer from similar articles written by human authors without evaluating the effectiveness of specific criteria.

The quantitative metrics represented the most basic ones closely watched by most investors and rarely represent the full picture of a company’s health and it is unclear how the AI would evaluate qualitative metrics like management alignment with shareholder interests.

When asked to apply the criteria above to a specific company’s stock to evaluate it, the AI generated the response below.

“I’m sorry, but I am not able to browse the internet or access information on specific companies or their stocks. I am a large language model trained by OpenAI, and my purpose is to provide general information and answer questions to the best of my ability based on the information I have been trained on. I do not have the ability to access or provide information on specific companies or their stocks.”