Artificial Intelligence Is Driving The Stock Market. It Has Some Advice For You.
© Courtesy of Microsoft"I'm the elephant in the room, and I'm not afraid to sparkle," says a digital replica of former Vice President Mike Pence, dressed in shiny pink with a boa. The video, widely viewed on Twitter this past week, shows prominent figures from the political right dressed in drag. It's based on an Instagram page called RuPublicans, a nod to reality show celebrity RuPaul, featuring portraits made using the Artificial Intelligence tools Midjourney and ChatGPT-4.
I'm firmly against this on multiple counts. It's childish and divisive. Using AI to create so-called deep fake likenesses of politicians sets a dangerous precedent. And Steve Bannon should avoid plunging necklines. But this is one example of AI's place for now in the public consciousness. There are distant applications of profound importance, like fully self-driving cars, and already-here but frivolous ones, like, well, Rudy Garland, a certain former New York City mayor in a cheetah print coat.
Of course, there are already plenty of commercially significant examples, like search results, facial recognition, and credit card fraud detection. But suddenly, AI seems to be taking over the stock market, too.
Strategists at J.P. Morgan point out that the S&P 500's year-to-date gain, recently 8%, has been driven by the narrowest stock leadership since the 1990s. "Interest in generative AI and [the] Large Language Model theme appears to be stretched," they write.
Large language models drive conversational bots like ChatGPT—from Microsoft-backed OpenAI—which office workers have been tinkering with since it opened to the public in November. I asked this past week if I should sell in May and go away. "No" seems to have been the answer, only wordier and more meandering, with lots of noncommittal phrases like "may not" and "not necessarily" and "generally." In other words, robots have already cracked the financial advice business.
Chatbot-themed investments have added $1.4 trillion in stock market value this year. Just six companies were recently responsible for 53% of S&P 500 gains: Microsoft (ticker: MSFT), Alphabet (GOOGL), Amazon.Com (AMZN), Meta Platforms (META), Nvidia (NVDA), and Salesforce (CRM). The 10 biggest S&P 500 members have close to their largest index weighting ever.
This would be easier to dismiss as froth if AI wasn't taking center stage this earnings season. Microsoft, Alphabet, and Meta reported solid results. Microsoft is leading the AI arms race, writes investment bank Wedbush. At Alphabet, search is becoming even more valuable as Google turns user behavior into language-model training for better results, says Morgan Stanley. At Meta, users who once relied on a limited set of friends and family for posts are increasingly drawn in by a never-ending supply of AI-recommended videos.
And then there are costs. At a recent conference, a top Microsoft executive pointed out that his developers increased productivity by 55% when they used an AI tool called GitHub Copilot, which turns natural language into coding suggestions. Higher productivity means that fewer programmers are needed, along with fewer support workers. That, as much as recent softness in advertising demand and concerns about the economy, is causing a rapid rethink of head count.
Meta is laying off nearly one-quarter of its workforce, and hasn't ruled out deeper cuts. Morgan Stanley recently laid out what that means for its financial model of the company. It had previously assumed 10% head-count growth in 2024. If it cuts that figure to 2%, the cost reduction would boost earnings by about $1.20 a share, or 8%. Recent layoffs at Meta, Alphabet, and Amazon are partly a reaction to prior overhiring, Morgan Stanley writes. But there are likely to be lasting changes, too: "Forward hiring levels should arguably be smaller and more targeted due to rapidly emerging AI productivity drivers."
Meta stock peaked at over $380 in September 2021, then plunged to under $90 in November amid rising interest rates and concerns that the company was blowing too much cash on vague metaverse ambitions. Now that Meta is viewed as a cost-conscious AI play, the stock recently fetched $238. That's around 28 times this year's projected free cash flow, or 20 times the free cash Wall Street sees the company unlocking two years from now. The S&P 500, for comparison, trades at 22 times this year's estimated free cash flow.
AI winners are making the index look expensive. But I'm not selling—the dividends will come in handy when the chatbot columnists take over.
For a second opinion on financial markets, I called on an advisor with a pulse: David Kelly, chief global strategist for the asset management side of JPMorgan Chase. Don't sell, he says. Yes, we might get a recession. But inflation is falling, and the Federal Reserve is likely to cut interest rates by next year and into 2025. Rates won't go back to zero—levels that low don't help the economy and lead to financial instability and bubbles, says Kelly. But rates will go low enough to make today's stock prices look reasonable.
The best stock deals are overseas, including in Europe and Japan, which are 30% cheaper than the U.S. Relative to earnings, especially now that a 15-year uptrend in the value of the dollar appears to have reversed, says Kelly. Also, buy bonds while you can. In America, they're becoming "a little bit like the cicada bug"—attractive yields show up briefly and then disappear for many years. And crypto, despite recent gains, is still "nonsense," a "vehicle for speculation," and "very, very vulnerable to some future market downturn."
ChatGPT, if you're wondering, took three paragraphs to explain that Bitcoin "could potentially go up," but also that there's "the possibility of it going down," and that I should do my own research and make "informed decisions." I'll stick with Kelly, unless the robots are reading, in which case I could maybe but not necessarily go either way.
Write to Jack Hough at [email protected]. Follow him on Twitter and subscribe to his Barron's Streetwise podcast.
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ChatGPT is being touted as the superpowered AI of science fiction lore, with the potential to inflame academic dishonesty, render jobs obsolete, and perpetuate political bias.
Unsurprisingly, governments are now taking heavy-handed, drastic measures to combat this perceived AI problem.
Italy's recent ChatGPT ban has prompted several countries – including France, Ireland, Germany and Canada – to consider similar policies blocking OpenAI's popular artificial intelligence program. According to the Italian Data Protection Authority, ChatGPT does not have "any legal basis that justifies the massive collection and storage of personal data." The agency gave the company 20 days to respond with changes or face a hefty multimillion-dollar fine. Meanwhile, Elon Musk and industry leaders are calling for an "AI pause."
© Gabby Jones/Bloomberg via Getty Images The ChatGPT logo on a laptop computer arranged in Brooklyn on March 9, 2023. Gabby Jones/Bloomberg via Getty ImagesIt is too early to determine if ChatGPT will actually live up to these claims. Since the long-term impact is still unclear, knee-jerk reactions like national bans yield little societal benefit. Our governments should focus on mitigating the chatbot's immediate harms, such as misinformation and slander.
YES, AI IS A CYBERSECURITY 'NUCLEAR' THREAT. THAT'S WHY COMPANIES HAVE TO DARE TO DO THIS
Chatbots trained on large language models, such as OpenAI's GPT-4, Google's Bard and Microsoft's Bing Chat fall under the larger umbrella of generative AI, which use machine-learning systems to create videos, audio, pictures, text and other forms of media. While U.S. Regulators have grappled with questions related to algorithmic bias, often in the context of decision-making systems that assist in hiring and lending, generative AI poses an array of new questions and challenges.
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© Photo by Jonathan Raa/NurPhoto via Getty Images Dall-E 2 seen on mobile with AI brain on Jan. 22, 2023, in Brussels, Belgium. Jonathan Raa/NurPhoto via Getty ImagesFor instance, Dall-E can make realistic images and art based on user prompts. As a machine learning model, Dall-E produces new content by "learning" from large swaths of data, at times by appropriating works of art and human images. Italy is targeting this privacy concern, but ultimately any prohibitions presuppose issues with emerging and evolving technology before they have been fully defined. The effectiveness of the policy depends on the extent to which these assumptions are correct.
National bans neglect to account for positive applications, such as increasing efficiency and productivity by making tedious tasks easier. Health experts predict that generative AI can be used for administrative purposes and improve the patient experience. If the ban is implemented successfully, Italy – and other countries that follow suit – will only prevent users from making use of the popular program and discourage domestic researchers from developing generative AI systems. It is also important to note that restrictions affect law-abiding citizens, not bad actors using the technology for more nefarious purposes, such as deception and fraud.
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While bans may not be the solution for addressing nascent technology, sensible and targeted regulations can ameliorate present harms. Regarding ChatGPT, there is a significant disparity between public perceptions of the chatbot and its actual abilities and accuracy. Its "learning" resembles imitation and mimicry far more than genuine understanding. Although the program is inclined to generate seemingly human-like responses, they can lack depth and, at their worst, be manufactured facts. Despite these flaws, many users do not check the veracity of ChatGPT's responses and instead treat them as data-driven truth.
Consider this simple prompt I gave ChatGPT: quotes from lawmakers about AI. It proceeded to list a series of convincing, yet entirely fabricated citations. All the links were broken or invalid. Similarly, SCOTUSblog, a legal analysis website, asked ChatGPT 50 questions about the Supreme Court and found that the program was wrong or misleading in a majority of its responses. For the chatbot, success is predicting and producing appropriate responses to the user's request – not accuracy.
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Incorrect information can have serious consequences when the stakes are high. Such as defamation, which has legal ramifications, though it is still unclear who would be responsible for AI speakers. In Australia, a mayor who was falsely accused by ChatGPT of bribery is contemplating a lawsuit against OpenAI, which would be the first defamation case against the chatbot.
Lawmakers in the United States and around the world should evaluate how emerging AI systems interface with the law. Sweeping prohibitions will do little to clarify these murky legal expectations, yet they will stifle the development of a program that millions find useful.
Hennen: Be Very Afraid Of Artificial Intelligence, A Lying Criminal Tool
Creepy. That's the best word I can use to describe artificial intelligence.
What is it? Let's ask Google: "Artificial intelligence is the simulation of human intelligence processes by machines, especially computer systems. Specific applications of AI include expert systems, natural language processing, speech recognition and machine vision."
It's not hard to envision all the ways those types of tools could be used for nefarious purposes.
Here is an example:
Just imagine answering a call and hearing the voice of a loved one screaming and crying for help. Then you hear the voice of a stranger threatening your family member unless you provide a ransom. It's happening, because AI can lift as little as three seconds of any voice from a video on social media to create an exact recreation of that voice saying anything the scammers choose. I've seen several reports of this having happened, and the parents who took the call said it sounded exactly like their child.
My first experience with AI was with ChatGPT. It's a web tool that uses AI technology to spit out a boatload of information in seconds.
Google says: "It is a natural language processing tool driven by AI technology that allows you to have human-like conversations and much more with the chatbot. The language model can answer questions and assist you with tasks, such as composing emails, essays and code."
Natural language? There is nothing natural about artificial intelligence. It's a machine engaging in a "human-like" conversation. It's fake.
To determine the accuracy of the bot, I decided to ask it about me. I asked: Who is Scott Hennen?
Some of the answers were flattering and plausible: "Scott Hennen is a prominent conservative radio personality, political commentator and businessman. Throughout his career, he has been a passionate advocate for conservative values and a vocal critic of what he sees as overreach by the federal government. While he has his share of detractors, Hennen's supporters view him as a principled and effective voice for conservative ideas and policies." Fact check, true.
But basic facts like my birthdate or where I was born were wrong.
Then there was this whopper: "He grew up in a farming family and attended the University of North Dakota, where he received a degree in political science. After college, Hennen worked in the political arena, serving as a field representative for North Dakota Sen. Mark Andrews and as a legislative aide for the North Dakota House of Representatives." I'm a city boy, and I never worked for either Mark Andrews or as a legislative aide. Fact check, false.
But wait, there's more: "In addition to his radio career and political activities, Hennen is also a successful businessman. He owns and operates several businesses, including a real estate development company and a coffee shop chain called 'The Coffee Hag.' " Fact check, what the heck? I've only been in one business, media. Who would buy java at a place called "The Coffee Hag"?
Here is a fact: AI cannot be trusted. Be very afraid of this technology.
Scott Hennen hosts the statewide radio program "What's On Your Mind?" On AM 1100 "The Flag", AM 1090 KTGO "The Flag" and AM 1460 KLTC. Email him at [email protected]
This column does not necessarily reflect the opinion of The Forum's editorial board nor Forum ownership.
