Dubai: Artificial Intelligence (AI) has become one of the most talked about technologies, particularly these past few months. But is this science of machine learning being applied to matters concerning your money and investments? Let’s find out.
AI, which is the ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings, has already been widely applied in the field of stock trading and investment.
“When it comes to investing, AI systems have already proven useful particularly due to their ability to process vast masses of information and analyse them in the real-time mode,” said Brody Dunn, an investment manager at a UAE-based asset advisory firm.
“AI can help improve stock market predictions by facilitating the rapid and precise study of massive data sets. Investors can improve their decision-making, lower their risk exposure, and boost their profits with the help of AI-powered tools.”
When it comes to investing, AI systems have already proven useful particularly due to their ability to process vast masses of information and analyse them in the real-time mode
Investors experiment with AI funds
With already experimenting with AI-built portfolios and investment strategies, industry experts evaluate how this trend will only continue to grow, especially as the companies that build their portfolios with AI from the ground up will stand to benefit significantly.
“As with all industries, an excellent way to invest in AI is through relevant funds. In fact, there's something of a rush on artificial intelligence ETFs right now. The market is filled with companies that are looking to capitalise on companies that operate in or around this technology,” added Dunn.
What are artificial intelligence ETFs? AI ETFs (exchange-tracked funds) mirrors growth of companies involved in the development and production of robots or AI. The world’s largest ETF is the ‘Global X Robotics & Artificial Intelligence ETF’ (BOTZ) with $1.72 billion (Dh6.32 billion) in investments.
However, such funds hold a wide range of companies involved not only in AI, but also industrial robotics, automation, and autonomous driving. However, if knowing this has got you interested in starting your AI-powered investment journey immediately, here’s what you should know.
How does AI-powered investing work?
With AI investing, you can choose how much money to allocate, but you can also leave it up to AI. Either way, AI handles all your investment holdings. Also, by conducting quick and thorough investment research and verifying sources, it can analyse stocks and ETFs more comprehensively.
But can AI technology be used to study the market? “AI technology learns the history of every security in the fund you opt for and identifies factors that influence the price. It weighs investments so the AI fund can allocate its users’ money in a way that corresponds with their risk tolerance,” Dunn added.
“With AI investing, users also get automated financial advice by using deep-learning technology to make trades on your behalf. Though the first step needs to come from a physical being, AI is responsible for the rest, that is managing the holdings within the fund.”
However, while AI’s ability to conduct thorough investment analysis gives it better forecasting and predicting skills, it’s far from being fool proof. As the predictions of AI investing is highly dependent on data, the quality and quantity of data has a considerable impact on the predictions’ accuracy.
So, companies that already have access to valuable datasets have a significant advantage, i.e., data giants like Facebook, Alphabet, and Visa, whereas companies without such access won’t be as reliable.
AI now gives average investors access to financial knowledge that was once limited to a selected few, as it can assess what factors influence the performance of an investment, and accordingly stay invested, sell or buy accordingly. This allows an investor to not base his or her investment decision on emotion, and instead take a more informed and unbiased decision when it comes to whether or not the investment needs to be sold or bought.
Risks associated with investing in AI
AI can also result in investors seeing their investments turn increasingly cyclical, which also poses the threat of a bursting bubble. “While the long-term potential of AI is very persuasive now, for short or medium-term investors, those who are looking to stay invested for less than 5 years, there are risks of a bubble amongst AI related stocks,” explained Zubair Shakeel, a UAE-based asset manager.
“For instance, US-based digital media company Buzzfeed spiked 300 per cent after using ChatGPT to generate content, with AI firms surging as well on the news. However, the market move seems a bit extreme. If this is a bubble, there could be better opportunities elsewhere for AI investors.”
But does that mean long-term investors stand to benefit from investing in AI? Shakeel agrees, while flagging certain factors that long-term investors, those who are looking to stay invested for more than 5 years, need to consider.
“The real value of investing in AI will come from investing in a business with an AI model that can be effectively monetised. So, investors would be advised to look past impressive adverts, find out how a company will make money from its AI investments, and then base your decision on that,” he added.
If you’ve been limiting yourself to a costly financial advisor for getting sound financial advice and if you no longer have the discretionary funds nor do you want to use them on a wealth manager anymore, you can use AI to your financial advantage.
“If you’re not very confident with investing you may see a news headline that says a company in your investment portfolio has come under a certain threat, and this might alarm you just enough to sell your shares immediately. However, this could later be considered a mistake,” Shakeel added.
“This is when AI investing turns very useful – when it enables you to resist such market impulses. With AI’s capability to quickly process content sources to identify changes in public sentiment or interest, it can eventually help you save money in the long run.”
So even when research can be too daunting for a newbie investor, particularly when it comes to making decisions in a fast-paced field like investing, AI is making it possible to make decisions based on more data in less time.
But the question remains as to how much control of one’s investment holdings can ultimately be handed over to machine intelligence? The answer for now is straight-forward. Like with all other investments, the AI avenue of investing is proving to be an effective way to diversify and be allocated some of your money, but not all of it - atleast not just yet.