Artificial intelligence is helping companies run more efficiently and offer more choices for their customers. The technology can minimize human errors and reduce operating costs, leading to higher profits. It can make people’s lives easier with personalized product recommendations, enhanced cybersecurity and quicker access to relevant information.
Some investors are also turning to new AI tools for stock picks and advice on how to manage their portfolios. Artificial intelligence can make stock picking seem easy. You can use search prompts like “best dividend income stocks” and “best growth stocks” to find investments that match up with your preferences. OpenAI’s ChatGPT large language model, for example, can give you 10 stock recommendations in a few seconds, along with summaries of what each company does. Alphabet Inc.’s (ticker: GOOG, GOOGL) Gemini language model can also provide stock recommendations based on the same prompts.
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AI can cut down on research and give you quick picks, and more investors are picking up on this emerging trend. More than half of Americans use artificial intelligence, and that number is likely to grow as the technology becomes more advanced.
The popularity of AI tools is growing among investors, but are these developments beneficial for returns? Does it make sense to use AI for your stock picks instead of investing in a mutual fund or exchange-traded fund (ETF) and relying on the fund’s managers to make your picks?
The answers to these questions are still unfolding, as the AI industry challenges how people think and expands their perceived capabilities, to the point that some speculate that AI could replace or even outperform fund managers or supplant financial advisors. Others aren’t completely convinced. Here are some of the factors surrounding AI’s future role in investment planning:
— How AI can help with stock picking.
— What to look for in an AI tool.
— AI stock-picking tools.
— Limitations of stock picking with AI.
— Will AI replace fund managers or financial advisors?
— Should you use AI for your stock portfolio?
How AI Can Help With Stock Picking
The stocks you add to your portfolio can heavily impact your finances, cash flow and long-term goals. AI can give you an edge if you are looking for a good place to start and want a few stock recommendations.
AI is good at sharing five to 10 stock picks based on a set of criteria. ChatGPT, for example, is a useful tool for top-of-funnel research because it can suggest stock ideas, but you should follow up with your own research and narrow the field to make your selections.
Alex Koynoff, a financial advisor and owner of ATK Financial Prosperity LLC, explains how artificial intelligence can make researching stocks more manageable: “Individual investors often face the challenge of conducting thorough research and analysis for stocks, which can be time-consuming and costly. Retail investors often lack access to sophisticated systems and data, but AI could potentially level the playing field by assisting with the research.”
Artificial intelligence can filter stock recommendations based on various criteria. For instance, you can use a stock screener to access a list of stocks with dividend yields above 2% if you want more cash flow.
This way, AI can save investors a lot of time in their decision making, says Dean Pernas, co-founder of Pernas Research. “AI is best used as a supplement and distiller of information to aid in making better investment decisions. Tasks that previously took a person a day of research can now be summarized succinctly and instantaneously by AI with a keystroke.”
What to Look For in an AI Tool
AI tools let you find stocks that align with your objectives, but there’s a subtle benefit that can significantly impact your long-term profits. Blaine Thiederman, a certified financial planner and founder of Progress Wealth Management, says AI doesn’t succumb to human factors that can limit portfolio growth. “AI algorithms are not influenced by human emotions, such as fear or greed, leading to more objective decision-making,” he says.
Up-to-date information and objectivity make for a good start. Here are some other features to look for in an AI tool:
Versatility. Some AI tools let you ask more detailed questions, which can help you find optimal investments for your portfolio.
Trading signals. Some AI tools let you find stocks that recently reached or exceeded key technical indicators. Traders won’t have much luck with ChatGPT or Gemini because those AI tools do not let you see real-time trading signals. Some AI tools can also make investments for you when stocks reach certain price points or technical lines. So, an AI tool like that can help traders save considerable time.
Data availability. Does your AI stock picker let you see a stock’s volume, moving average and other details? Some AI tools have better information on your favorite stocks than others.
Stock scoring. While this feature shouldn’t make or break an AI investing tool, a scoring system can tell you what the AI thinks about the stock. You should familiarize yourself with the methodology used to formulate the score before taking it seriously.
AI Stock-Picking Tools
While ChatGPT and Gemini are general AI services, other tools specifically cater to stocks. You can choose from several AI options for your stock picks. It’s important to do your due diligence when deciding to make an AI tool part of your investing strategy, and this is just a snapshot of what’s out there:
TrendSpider. This technical analysis-based AI tool comes with a bot, asset insights, back-testing and other features. Back-testing lets you test how your current strategy would have performed in previous market cycles. For instance, you can see how your current strategy would have performed two years ago.
Trade Ideas. This AI-based platform always has up-to-date information on stocks, since it connects to the major stock exchanges. You can use this tool to learn more about a stock before investing in it or let an AI bot perform the trades for you.
Magnifi. This stock brokerage platform has an AI tool that lets you find stocks and funds based on several criteria. You can look for funds that recently increased their holdings in your favorite companies. Magnifi offers more flexibility than ChatGPT or Gemini while streamlining your research.
These tools can make relevant information more accessible, and some traders also set up bots to further automate the process. Many AI tools also let you try out the trading bot with “test” money before you invest real money.
Limitations of Stock Picking With AI
Artificial intelligence continues to grow and tap into new markets. It presents many advantages for investors, but AI also has its limits. One setback is that AI will have to overcome the shortcomings of its novelty.
“AI’s lack of a proven track record makes it difficult for most people to have confidence in its recommendations,” Pernas says. Investors can look at funds like the Invesco QQQ Trust (QQQ) and see that is has generated an annualized total return of 18.4% over the past decade as of June 3. AI tools do not have that same record because they are relatively new.
Pernas also mentions “the lack of high-quality data for AI to train on.” While AI tools have plenty of data and can quickly provide the price-to-earnings ratio, or P/E, of any company, there’s more to quality data than knowing every ratio.
Rising interest rates, inflation, geopolitical tensions and changes in consumer spending all play key roles in total returns. AI tools have access to plenty of historical data, but not all of them have access to real-time macroeconomic data as it gets released.
You also have to know what you want from your portfolio before using AI tools. While these tools can make you more efficient, they can’t do the thinking for you. Even if you use an AI bot to make stock picks, you still have to set the bot’s trading parameters and rules.
“Investors need to define their investment objectives, risk tolerance and time horizon,” Thiederman explains.
Will AI Replace Fund Managers or Financial Advisors?
Artificial intelligence is evolving within ChatGPT, Gemini and other large language models to create new possibilities, if not replace their human counterparts in business.
An AI-powered investment platform called PortfolioPilot is regulated by the U.S. Securities and Exchange Commission, or SEC. PortfolioPilot helps more than 17,000 individuals conduct portfolio overhauls based on personal preferences, optimize fees to lower total costs and discover investment ideas. The firm currently has $12 billion in assets under management.
While artificial intelligence continues to make strides, it won’t be replacing fund managers or financial advisors. AI and machine learning tools have been around for years. Pernas says AI may replace some functions, but certain financial advisors will continue to have a role in investment and personal financial planning.
“AI is likely to replace stock pickers who make decisions based on quantitative metrics. However, it is unlikely that AI will ever replace humans who make forward-looking and qualitative investment decisions,” Pernas says.
AI is becoming more mainstream, but investors and analysts still need to make decisions based on real-time news. The technology is only as good as the investor using it.
PortfolioPilot also uses artificial intelligence to make financial advice more accessible. However, investors have to know enough about their risk tolerance and finances to ask the right questions and receive answers that apply to them in a meaningful way.
A financial advisor can use their experience with previous clients and take a deeper look at your financial well-being to help you achieve your long-term goals. Working with a financial advisor can also build a sense of camaraderie that is difficult to replicate with artificial intelligence.
Should You Use AI for Your Stock Portfolio?
Artificial intelligence can make a great addition to any portfolio strategy. You can ask questions and receive stock picks, insights and critical details to help you make the best decisions. AI shortens the research process and simplifies stock picking.
Though AI has many benefits, you shouldn’t blindly rely on it. You still have to know what you want from your portfolio, and market knowledge can help you see opportunities and obstacles ahead.
You should research what questions to ask an AI stock picker. Asking better questions will lead you to better answers. It’s best to treat AI stock tools like assistants. They can provide the information you need, but it’s still up to you to make decisions and stay on top of the market.
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Update 06/04/24: This story was previously published at an earlier date and has been updated with new information.
