It shapes our lives to an even greater extent than we might realise, and that includes the way in which our money is invested. Artificial Intelligence (AI) has a big influence on how we live and work, helping shape everything from how we communicate, what we watch and where we go to how safe we are and how long we live for.
It also has a big influence on how we invest and on the performance of our investments. AI-related stocks have played a big role in the stock market highs we’ve seen over the past 18 months. Indices including the UK’s FTSE100 have hit record highs this year, but there are concerns around a potential AI ‘bubble’, with AI-related stocks attracting huge valuations that some consider disproportionate.
So, how is AI affecting how we invest and what we invest in?
AI has driven the bull market
AI-related stocks have helped drive stock markets including the UK’s FTSE 100 and the US S&P 500 to new highs this year, with many of the best performing stocks benefiting from the AI boom. This includes the big seven tech companies – Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia and Tesla – which are now worth more than £16tn. Apple, Amazon, Meta and Microsoft have ploughed huge sums into AI over the past couple of years, driving up valuations of AI companies and in turn pushing stock markets up too.
Chipmaker Nvidia – which develops the AI chips behind systems such as ChatGPT – has seen its stock price go through the roof and it’s now valued at around 54 times its historic earnings. However, valuations such as this have fuelled fears that too much money is flowing into the AI market on the basis of little more than expectations.
You’ve probably got money in AI stocks
Whether you know it or not, the money you pay into your pension or investment funds is almost certainly part of the flow of investment helping push tech and AI stocks ever higher. Many of the funds that manage our pensions and investments are significantly exposed to the AI market, some more directly than others.
Some funds focus specifically on AI, while there are plenty of tech funds that invest in AI companies among other technology stocks. But even general investment trusts and funds will provide more than enough tech and AI exposure for most investors. The scale of the big seven means that most broad investment funds have at least some exposure to the sector, particularly global growth, multi-asset and North America equity funds.
This means the fortunes of those funds (and therefore the wider market) are tied to the performance of a small handful of global tech giants. This makes it important to check beneath the bonnet of the funds you own, as some broad-based funds will have more tech holdings than others.
Fund firms are using AI for research
The vast majority of fund managers either already use AI as part of their investment strategy or asset class research or plan to do so. It is used primarily by managers as part of their investment research, to analyse large data sets in order to generate investment ideas. In most cases, this analysis informs investment decisions rather than determines them.
For example, it enables managers to scrape vast amounts of sources (such as analysts reports, news articles, patent filings and social media) for key words that help inform investment forecasts and uncover potential opportunities. AI can also interrogate real-time data to build more accurate assessments of what’s happening at a given time, rather than rely on historical data. For instance, one firm described using real-time spending data immediately following the 2016 EU referendum to understand the impact of the result on consumer spending, finding there hadn’t been the significant change in spending patterns that many had expected.
AI can help you invest too
Technology has helped transform the retail investment market over the past 15 years, not least with the emergence of digital investment services and platforms. Many of these platforms leverage algorithms and AI to automate portfolio management, providing investors with a convenient and affordable alternative to traditional wealth management. We have more on the digital investment services – sometimes referred to as robo-advisers – available and the alternatives.
More broadly, AI enables investors to buy, sell and manage their own investments online, as well as providing them with the real-time market data, analysis tools and educational resources to make more informed decisions independently. Among the digital kit becoming more widely used among retail investors are real-time market monitoring tools, risk profiling software, portfolio tracker apps and fund screeners. All of this is on top of the technology already available, including our own platform comparison tools.
Photo by ZHENYU LUO on Unsplash
