Artificial Intelligence: Resistance Is Futile
When it comes to the global and pervasive spread of artificial intelligence (AI), I’m reminded of a mantra uttered by The Borg in the Star Trek movies: “Resistance is futile.” Sure enough, the biggest profits are made by investing in unstoppable megatrends.
If AI weren’t reality, it would seem like a science fiction plot concocted by Trekkies. This disruptive technology is transforming the world just as radically as the iPhone, the personal computer, and the search engine.
AI is certainly no fad. The size of the global AI market was valued at USD 136.55 billion in 2022 and it’s projected to expand at a compound annual growth rate of 37.3% from 2023 to 2030, according to Grand View Research.
For insights into how AI already is affecting the investment world, I interviewed my colleague Robert Rapier, chief investment strategist of Utility Forecaster, Rapier’s Income Accelerator, and Income Forecaster.
A prolific writer, Robert’s articles have appeared in Forbes, The Wall Street Journal, The Washington Post and the Christian Science Monitor. He also has been a featured expert on 60 Minutes and The History Channel.
Before I get to my interview with Robert, we should first get our definitions straight. AI is machine-displayed intelligence that simulates human behavior or thinking and can be applied to solve specific problems. A sub-set of AI is machine learning, which uses algorithms to produce applications that can perform a variety of complex tasks.
An “algorithm” is a set of instructions that tells a computer what to do. AI is a computer system that can learn and make decisions independently.
Whether in factory automation, customer service, or medical research, AI is increasingly a part of mainstream society. AI’s uses are expanding exponentially. Startups are fueling innovation in AI; Big Tech already has invaded the industry.
The buzz over AI has driven the overall technology sector higher so far this year, with many AI-related stocks soaring. The tech-heavy NASDAQ has entered a new bull market, driven by better-than-expected first quarter 2023 operating results from large-cap Silicon Valley giants that have made multi-billion-dollar investments in AI.
Robert [pictured] has much to say about AI and what this game-changing phenomenon means for your portfolio. My questions are in bold. The following transcript has been edited for concision and clarity.
I’ve often heard you refer to AI as “the third technological singularity.” What do you mean by that?
Technological innovations have had a significant impact on everyone’s lives over the past few decades. While there have been numerous game-changing innovations, “singularities” stand out as truly revolutionary.
Electricity, the automobile, and flight are three significant innovations that changed the world. But in my lifetime, two innovations that have had a massive impact on our daily lives that constitute “singularities” were 1) the development of web browsers in the early 1990s, and 2) the adoption of the smartphone in the early 2000s.
Following the introduction of web browsers, the Internet grew explosively, and it’s hard to imagine life without the Internet today.
Similarly, smartphones brought the Internet to us in real-time. We now take pictures and record video, listen to music, navigate, and browse the Internet from anywhere. If you were in a restaurant in 2000, nobody was staring at a phone. Nowadays, walk into any restaurant, and you’ll see most of the diners staring at their phones.
The third technological singularity is unfolding right now: the rise of AI-driven chatbots. What chatbots are already doing is mind-blowing, and it’s hard to keep up with the pace of innovation. I think a decade from now we will be saying “Can you imagine our lives without chatbots?” Imagine your life without the Internet or a smartphone, and that’s where AI is headed.
Aren’t there risks to AI? There’s an entire genre of dystopian novels and movies about AI robots that take over the world and make human beings their slaves. Big Tech is currently grappling with the ethics of AI and trying to implement guardrails. What are the downsides to this emerging technology?
I am not suggesting that this is all a good thing. There’s been lots of bad with the good. Some would argue that the bad outweighs the good.
I fear the potential of this chatbot revolution for causing massive unemployment. There are already lots of websites that have identified the jobs most at risk from ever-improving chatbots. Increasingly integrated with AI, robotics/automation is permeating a variety of industries.
Strategic planners at the Pentagon are grappling with the notion of autonomous AI-driven weapons systems that could trigger Armageddon.
Our experiences with algorithms already portend some of the effects, beneficial and deleterious, we can expect from AI.
Yes, couldn’t the ultra-fast speeds of AI make stock market crashes worse? For example, algorithms dominate Wall Street today, but back in the 1980s, this reliance on algorithms was new, and it hastened the panic selling of stocks on “Black Monday” in October 1987. There are lots of other examples.
That’s exactly right. During the 2008 global financial “black swan,” for example, regulators weren’t prepared for how derivatives and other quant strategies exacerbated the meltdown.
The 2010 flash crash stemmed from algorithms that manipulated the market. The COVID-induced market plunge of February-March 2020 also was worsened by machine program trading.
Okay, with all these caveats in mind, how will AI change investing for the better?
I think the way individual retail investors make decisions will be significantly and positively impacted by AI. There is great potential for a real-time chatbot to evaluate our portfolios, and quickly identify potential improvements. Once it identifies such investments, you can query it on specific things about a company, such as “What are the risks facing this company in the next five years?”
I thought it would be an interesting experiment to go straight to the source, and ask one of the popular chatbots, GPT-4, how AI will impact investing. It took only about 15 seconds to spit out the answer, including the disclaimer at the end:
“AI is poised to have a significant impact on stock market investing for individuals in several ways:
Enhanced Data Analysis: AI algorithms can process vast amounts of data at high speeds, enabling investors to analyze financial data, news, and social media sentiment more efficiently. This can help identify trends, patterns, and potential investment opportunities that may have been overlooked by human analysts.
Improved Decision-Making: AI-powered tools can help individual investors make more informed decisions by providing real-time insights, risk assessments, and predictive analytics. These tools can help investors better understand the potential outcomes of their investment decisions and manage their portfolios more effectively.
Personalized Investment Advice: AI-driven robo-advisors can provide personalized investment advice based on an individual’s financial goals, risk tolerance, and investment horizon. These platforms can automatically manage and rebalance portfolios, ensuring that investors maintain a diversified and optimized investment strategy.
Algorithmic Trading: AI can be used to develop sophisticated trading algorithms that execute trades automatically based on predefined criteria. This can help individual investors capitalize on short-term market opportunities and minimize the impact of human emotions, such as fear and greed, on their trading decisions.
Enhanced Risk Management: AI can help investors better manage risk by identifying potential threats and vulnerabilities in their portfolios. By analyzing historical data and market trends, AI can provide insights into potential market downturns and suggest strategies to mitigate losses.
Lower Costs: AI-driven platforms can help reduce the costs associated with investing by automating various tasks, such as portfolio management and trade execution. This can make investing more accessible and affordable for individual investors.”
And here’s the disclaimer as provided by GPT-4:
“While AI has the potential to revolutionize stock market investing for individuals, it is essential to remember that AI-driven tools and algorithms are not infallible. Investors should continue to educate themselves, stay informed about market developments, and maintain a long-term perspective when making investment decisions.”
As Mr. Spock might have said: Fascinating.
Yes, it is. AI will affect your life, just as surely as many of our readers used the Internet, perhaps on a smartphone, to access this article. Get ready for it.
Keep in mind, AI isn’t the sole province of the mega-cap Silicon Valley behemoths. Beneath the surface, there’s a growing number of lesser-known quality companies with AI-related products whose growth prospects are just being noticed by the market. I’ll be keeping an eye out for these opportunities.
Thanks for your time.
Editor’s Note: In the discussion above, my colleague Robert Rapier provided you with invaluable investment guidance. But I’ve only scratched the surface of his expertise.
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John Persinos is the editorial director of Investing Daily.