Using artificial intelligence (AI) in investments has led to transformations in stock trading. AI has revolutionized the analysis of financial markets, facilitating decision-making for investors and enhancing forecast accuracy. In this article, you’ll explore AI stock predictions and how to analyze potential stocks to buy with ChatGPT.
AI in investing
The increasing trend in internet searches for the keyword “artificial intelligence” is evident, with notable momentum attributed to the product known as ChatGPT from OpenAI.
ChatGPT, developed by OpenAI, is a powerful language model that has found successful applications in the banking sector, handling large volumes of data, processing customer information, and conducting analysis.
This neural network can assist in risk assessment and developing financial strategies by analyzing company financial data and offering recommendations. The application of ChatGPT in brokerage firms, such as the well-known Robinhood, confirms the effectiveness of this approach. Researchers from South Korea have also conducted studies supporting the successful use of ChatGPT in forming investment strategies.
How to use AI for investment advice in 3 steps
Review shares
When you approach ChatGPT with a request for a specific investment analysis, the AI response is usually the following:
ChatGPT
I lack real-time data access and cannot provide precise forecasts regarding short-term price movements, including NVIDIA (NVDA) stocks. It is recommended to base investment decisions on thorough research, considering your investment goals, and understanding associated risks.
However, there is a way to get around such restrictions.
Imagine you want to receive an overview of several companies and their industries, such as Microsoft, Oracle, TSMC, Snowflake Inc., IBM, and Baidu. You should formulate your request in the following manner:
Microsoft Corporation (MSFT):
- Strengths: Microsoft is a leading technology company offering various products and services, including software, cloud services, and hardware. Its strong financial position, consistent revenue growth, and widespread product distribution contribute to its stability.
- Risks: Competition in the technology industry is intense, and Microsoft faces challenges from other major players. Additionally, its stock valuation may be sensitive to changes in broader economic conditions.
Oracle Corporation (ORCL):
- Strengths: Oracle is well-known in corporate software markets and cloud computing. The company has a longstanding reputation for its database management systems and business software solutions.
- Risks: The technological landscape is dynamic, and Oracle contends with competition from traditional and new players. The shift to cloud services may also impact demand for Oracle's traditional software products.
Taiwan Semiconductor Manufacturing Company Limited (TSMC):
- Strengths: TSMC is a crucial player in the semiconductor manufacturing industry, providing services to a broad range of clients. The growing demand for advanced semiconductor technologies bodes well for TSMC.
- Risks: The semiconductor industry is cyclical and sensitive to global economic conditions. Geopolitical factors and potential supply chain disruptions also influence TSMC's business.
Snowflake Inc (SNOW):
- Strengths: Snowflake is a company specializing in cloud data storage, and its platform is known for its scalability and flexibility. The increasing importance of data analytics and cloud computing presents growth opportunities for Snowflake.
- Risks: Snowflake operates in a competitive market, and investor expectations may influence its valuation. The company's financial performance also depends on the overall adoption of cloud technologies.
International Business Machines Corporation (IBM):
- Strengths: IBM is a technology company with extensive experience and a diversified portfolio, including cloud services, artificial intelligence, and corporate solutions. The company has a strong presence in IT services.
- Risks: IBM has faced challenges adapting to rapidly changing technological landscapes. The company's revenue growth must be more consistent and compete with traditional and new players.
Baidu Inc (BIDU):
- Strengths: Baidu is a significant player in the Chinese technology industry, particularly in internet services and artificial intelligence. The company holds leading positions in online search in China.
- Risks: Baidu operates in a tightly regulated and competitive market. Regulatory changes in China, as well as global economic conditions, can impact the company's performance. Additionally, Baidu's investments in new technologies may take time to yield significant profits.
Common Risks:
- Market and Economic Conditions: All these companies are influenced by broader economic conditions and market trends.
- Technological Changes: Rapid technological advancements can affect the relevance of products and services offered by these companies.
- Regulatory Risks: Companies operating in different regions are subject to regulation changes that impact their operations and financial performance.
- Competition: Each company faces competition in its industry, and market dynamics can influence its market share and profitability.
It's crucial to note that investing always carries risks, and consulting with a financial advisor and conducting thorough research is advisable before making any investment decisions. Additionally, staying informed about the latest developments in companies and industries is crucial for making informed investment choices.
Identify key indicators
We recommend using financial report data for a more detailed analysis, too. The next step is to ask about the key indicators to focus on.
When making an investment decision, it's important to consider a variety of company indicators to gain a comprehensive understanding of its financial health, growth potential, and overall performance. Here are some key indicators to focus on:
1. Revenue and Revenue Growth:
- Look at the company's total revenue and how it has been growing over time. Consistent revenue growth is often a positive sign.
2. Earnings and Earnings Per Share (EPS):
- Examine the company's net earnings and EPS. Positive and growing earnings are essential for long-term sustainability.
3. Profit Margins:
- Analyze the gross, operating, and net profit margins. Higher margins indicate efficiency and profitability.
4. Debt Levels and Debt-to-Equity Ratio:
- Assess the company's debt levels and its ability to manage debt. A lower debt-to-equity ratio is generally preferable.
5. Cash Flow:
- Evaluate the operating cash flow. Positive cash flow is crucial for day-to-day operations and investments.
6. Return on Equity (ROE) and Return on Assets (ROA):
- ROE measures how well a company generates returns for its shareholders, while ROA indicates efficiency in asset utilization.
7. Dividend Yield and Payout Ratio:
- If you're interested in dividend-paying stocks, check the dividend yield and payout ratio. Sustainable dividends are important.
8. Book Value:
- Compare the stock's market value to its book value. This can provide insights into whether the stock is overvalued or undervalued.
9. Price-to-Earnings (P/E) Ratio:
- Consider the P/E ratio to assess the stock's valuation compared to its earnings. A lower P/E may indicate a more attractive valuation.
Analyze financial reports
We recommend using financial reports data for a more detailed analysis, too. With access to open data, such as companies’ financial reports on the TradingView platform, you can upload the information to AI and analyze it properly.
Find a stock on the platform, go to Financials, and select Statements to see the income statement. Copy this data and upload it to ChatGPT.
Based on the provided data, the AI will generate a summary highlighting key points. It can organize this information into a table as well.
Receive an overview
After completing the previous steps, the AI provides an overview of the asset. Here’s an example of the NVIDIA share:
Total Revenue:
- NVIDIA's total revenue has shown significant growth, reaching $44.87 billion in the latest reported period (TTM).
- Annual growth has been impressive, with a 205.51% increase compared to the same period the previous year.
Gross Profit:
- The gross profit has followed a positive trend, standing at $31.34 billion (TTM).
- The annual growth in gross profit is notable, with a 321.78% increase.
Operating Income:
- Operating income has seen substantial growth, reaching $20.61 billion (TTM).
- The annual growth rate is remarkable, with a 1633.28% increase compared to the previous year.
Net Income:
- The net income has shown consistent growth, reaching $18.89 billion (TTM).
- The annual growth rate is impressive, with a 1259.26% increase compared to the same period the previous year.
Earnings Per Share (EPS):
- Both basic and diluted EPS have demonstrated strong growth, showcasing positive trends in the company's profitability.
EBITDA:
- EBITDA has seen a significant increase, reaching $22.16 billion (TTM).
- The annual growth rate is substantial, with a 971.40% increase.
Debt Levels:
- The analysis doesn't provide specific information on debt levels. It's advisable to consider the company's debt position for a comprehensive financial assessment.
Operating Expenses:
- Total operating expenses have increased, standing at $24.26 billion (TTM). This includes costs such as R&D and sales/marketing expenses.
In summary, NVIDIA has displayed robust financial performance, marked by substantial revenue and income growth. The company's focus on innovative technologies and strong market positioning contribute to its positive financial outlook. However, investors should also consider factors such as industry trends, competitive landscape, and any potential risks associated with the semiconductor market.
Please note that investment decisions should be made based on a thorough analysis of various factors, and it's recommended to consult with financial professionals before making investment choices.
As you can see, ChatGPT has highly regarded this asset as promising for investment. However, it has yet to overlook potential risks that should be considered.
AI Market Outlook for 2024
Let’s take a more detailed financial overview of the tech giants: Microsoft, Oracle, TSMC, Snowflake Inc, IBM, and Baidu, using artificial intelligence in company reports, as per the instructions above:
Microsoft
- Total Revenue: $56.52 billion, growth by 12.76%.
- Gross Profit: $40.22 billion, growth by 15.99%.
- Operating Profit: $26.89 billion, growth by 24.99%.
- Net Profit: $22.29 billion, growth by 26.97%.
- Earnings Per Share (EPS): Strong primary and diluted earnings growth.
- EBITDA: $30.82 billion, growth of 26.77%.
- Operating Expenses: $29.62 billion.
Oracle
- Total Revenue: $51.63 billion, growth by 8.17%.
- Gross Profit: $33.84 billion, growth by 13.73%.
- Operating Profit: $14.90 billion, growth by 22.11%.
- Net Profit: $10.14 billion, growth by 43.77%.
- Earnings Per Share (EPS): Positive EPS growth.
- EBITDA: $21.07 billion, growth of 14.55%.
- Operating Expenses: $36.73 billion.
TSMC
- Total Revenue: $38.17 billion, decrease by 0.44%.
- Gross Profit: $20.92 billion, decrease by 10.55%.
- Operating Profit: $17.05 billion, decrease by 12.86%.
- Net Profit: $15.52 billion, decrease by 11.82%.
- Earnings Per Share (EPS): $0.07, decrease by 12.50%.
- EBITDA: $26.04 billion, decrease by 1.87%.
- Operating Expenses: $21.12 billion, decrease by 5.49%.
Snowflake Inc
- Total Revenue: $734.17M, YoY growth +31.80%.
- Gross Profit: $1.72B, YoY growth +38.89%.
- Operating Profit: -$260.62M, YoY growth -26.50%.
- Net Profit: -$214.25M, YoY growth -6.63%.
- Earnings Per Share (EPS): Basic -$0.65, YoY growth -3.65%.
- EBITDA: -$228.15M, YoY growth -29.64%.
- Operating Expenses: $994.80M.
IBM
- Total Revenue: $61.17 billion, growth by 4.57%.
- Gross Profit: $32.98 billion, growth by 8.78%.
- Operating Profit: $8.93 billion, growth by 48.35%.
- Net Profit: $6.92 billion, year-over-year growth not specified.
- Earnings Per Share (EPS): Positive earnings per share, specific growth not provided.
- EBITDA: $13.31 billion, growth not specified.
- Operating Expenses: $52.24 billion.
Baidu
- Total Revenue: $18.80 billion, growth by 0.11%.
- Gross Profit: $9.66 billion, growth by 5.53%.
- Operating Profit: $2.98 billion, year-over-year growth not specified.
- Net Profit: $3.21 billion, year-over-year growth not specified.
- Earnings Per Share (EPS): Positive earnings per share, specific growth not provided.
- EBITDA: $4.02 billion, growth not specified.
- Operating Expenses: $15.82 billion.
Common сonsiderations for all companies:
- Market and Economic Conditions: All companies are influenced by broader economic conditions and market trends.
- Technological сhanges: The rapid pace of technological advancements may affect the relevance of their products and services.
- Regulatory risks: Operating in different regions exposes companies to regulation changes, affecting their operations and financial performance.
- Competition: Each company faces competition in its industry, and market dynamics can influence its market share and profitability.
Summary
Today, we discovered how AI predicts the future of companies based on open data. It’s important to emphasize that while reviewing financial instruments using AI stock predictions can facilitate the development of a financial strategy, making informed trading decisions still requires thorough individual research and careful analysis of current market conditions.
FAQ
What stocks to invest in 2024?
Pay close attention to companies actively investing in AI development. Manufacturers of chips and software developers will directly benefit from the growing demand for AI.
Companies implementing AI can expect increased revenues through improved efficiency and higher sales related to products optimized for AI use, along with enhanced distribution and marketing strategies.
In our view, the top three companies are the following:
Microsoft: A company engaged in developing and supporting software for personal computers. It is also a leader in cloud computing, enabling the creation and maintenance of corporate applications.
Taiwan Semiconductor (TSMC): The world’s largest semiconductor manufacturing plant specializing in contract semiconductor manufacturing for major technology companies, including Microsoft and NVIDIA.
NVIDIA: The world’s largest chip developer without its manufacturing capabilities. NVIDIA's chips are used in gaming consoles, autonomous and traditional vehicles, cloud services, and data processing centers.
What are the top 3 AI stocks to buy now?
Based on the provided financial data, here’s a subjective ranking of the top 3 AI companies to invest in among Microsoft, Oracle, TSMC, Snowflake Inc, IBM, and Baidu:
Microsoft (MSFT):
- Microsoft stands out with strong and consistent growth across various financial metrics, including total revenue, gross profit, operating profit, and net profit. The company’s well-diversified portfolio and consistent performance make it a strong contender.
Taiwan Semiconductor Manufacturing Company (TSMC):
- TSMC exhibits remarkable stability. As a critical player in the semiconductor industry, TSMC's strategic importance and positive financial trends position it favorably.
Baidu Inc (BIDU):
- Baidu secures a position in the top three with solid net profit growth, particularly in the first and second quarters of 2023. Being a significant player in the Chinese technology industry adds to its appeal.
What will AI stock price be in 2025?
Forecasting specific stock prices for AI investment companies in 2025 is inherently uncertain due to the factors influencing the stock market, including economic conditions, technological advancements, regulations, and individual company performance. The AI sector’s continued growth is expected, driven by its widespread industry applications.
Companies leading in AI innovation may experience heightened demand for their offerings. Technological advancements such as machine learning and robotics will reshape the competitive landscape, favoring companies at the forefront of innovation. Adapting to evolving regulatory frameworks, particularly in data privacy and AI ethics, is critical for operational resilience. Monitoring global events and economic conditions and staying attuned to individual company performance are essential factors for AI stock investing.
Will 2024 be a good year for the stock market?
The stock market’s performance in 2024 will hinge on a complex interplay of factors. Economic conditions, corporate earnings, interest rates, geopolitical events, technological advancements, investor sentiment, and unforeseen global events contribute to market dynamics. Financial health, corporate profitability, and global stability will likely be critical determinants.
However, predicting market outcomes remains inherently uncertain, emphasizing the importance of diversification, analyzing potential stocks to buy, informed decision-making, and consideration of individual risk tolerance for investors navigating the dynamic landscape of the stock market.