How ChatGPT and AI Might Impact Investors

KEY TAKEAWAYS

• ChatGPT is a potentially transformative artificial intelligence (AI) breakthrough, crossing one million users within five days of launch.¹
• ChatGPT is an advanced form of generative AI, which can have human-like conversations, create content, images and audio.
• Generative AI could have significant implications for different areas of the economy ranging from displacing web-based search tools to automating various services industries.

Note: The below section titled “How might ChatGPT impact investors” was written by ChatGPT when we entered the prompt, “How might ChatGPT impact investors?”

WHAT IS ChatGPT?

ChatGPT (Generative Pre-Trained Transformer) is an advanced form of an artificial intelligence (AI) chatbot that can understand and create human-like conversation. ChatGPT was released by OpenAI, a company focused on artificial intelligence. It uses a transformer algorithm, which is based on a neural network: a computer program that mimics the way the human brain works.² ChatGPT was trained using a massive amount of data from the internet, including books, Wikipedia, articles, and other pieces of writing, amounting to 300 billion words!³ The model uses its knowledge to predict what the next word should be in a sentence. ChatGPT is continuously learning, so as it processes more text it can become better at predicting what words should come next, generating increasingly realistic outputs.

While OpenAI is not a public company, investors have taken notice of the potentially transformative nature of artificial intelligence. After underperforming the S&P 500 through the first 11 months of 2022, the NYSE FactSet Global Robotics and Artificial Intelligence Index has returned 17.3% since the launch of ChatGPT on November 30^th, 2022, outperforming the S&P 500 by 14.2%.⁴

IMPLICATIONS OF ChatGPT AND AI ON THE BROADER ECONOMY

While companies have significantly increased investments and use of artificial intelligence over the past 20 years, breakthroughs like ChatGPT have the potential to disrupt a variety of industries and create opportunities for investors. In fact, the global AI market is expected to double between 2022 and 2026, reaching $900 billion.⁵

Mentions of “Artificial Intelligence” in S&P 500 Transcripts

Source: FactSet. Accessed on 1/27/23. Transcripts reflect company commentary on earnings calls and investor day presentations.

Chart Description: Bar chart reflects mentions of “artificial intelligence” in transcripts for S&P 500 companies dating back to 2000. 

While still in its infancy, we envision two ways generative AI could revolutionize the world.

1. Search: Generative AI could upend the search engine model, which has been the dominant form of digital information gathering since the 1990s. Today, search engines rely upon digital advertising spending that allows companies to promote products in response to specific search queries (e.g., “what should I visit on my vacation in Barcelona?”). Digital advertising is a $681 billion market⁶ which could be disrupted if there is less reason for people to click on advertising links; that is, if generative AI can eliminate the requirement for a search engine intermediary and deliver information directly to consumers.
2. Services Industries: Generative AI can perform a wide variety of tasks that are currently done by humans. It can do everything from developing complex lines of code to language transcription and translation to making wardrobe suggestions for a particular occasion. Impacted sectors include technology, education, and retail, though it’s not difficult to imagine other areas of the economy, such as healthcare, being impacted as well. (No more waiting several days for a doctor to call you back and explain an MRI result!) In fact, Buzzfeed recently announced they plan to use AI powered by ChatGPT to help generate content such as quizzes and articles.⁷ With the U.S. still facing a labor shortage of 4 million workers⁸, and ageing populations around the globe threatening future labor supply, companies able to create AI tools that could enhance productivity and efficiency may benefit.

HOW MIGHT ChatGPT IMPACT INVESTORS?

ChatGPT, as a language model, has the potential to impact investors in a variety of ways. It can be used for natural language processing, which can help with tasks such as sentiment analysis and news summarization. This can potentially aid investors in making more informed decisions by providing them with a better understanding of the overall sentiment and key information related to a particular stock or market. Additionally, ChatGPT can also be used for content generation, such as creating financial reports or earnings call transcripts. This can potentially save investors time and resources in analyzing financial information. Overall, ChatGPT could help investors make more informed decisions and increase efficiency in their analysis of financial information.

Note: This does not constitute investment advice. The above section titled “How might ChatGPT impact investors” was written by ChatGPT when we entered the prompt, “How might ChatGPT impact investors?”

LOOKING AHEAD FOR GENERATIVE AI AND BROADER AI BREAKTHROUGHS

ChatGPT is not the only generative AI offering making headlines. DALL-E creates digital images based on user descriptions. Check out the painting below, which was created by DALL-E after being asked to “paint us a picture of your favorite futurist inventor”.

Technology like DALL-E has major implications for creative areas of the economy, such as the arts and entertainment, which previously had been thought of as immune to the forces of AI.⁹

Character.AI is another generative AI service which allows people to chat with a facsimile of anyone alive or dead, real or imagined.¹⁰ We see these new use cases for AI technology appearing with increased frequency, reflecting the fast-flowing nature of the space.

Ultimately, the goal of AI researchers is to achieve multi-modal AI; an application that can learn from and engage via text like ChatGPT, also learn via and generate images like Dall-E and extend to understanding and learning from audio, time-based and spatial data too. By combining all of these “types of intelligence” AI can become exponentially more useful and multi-faceted.

HOW TO INVEST IN THE AI THEME

Investors looking to access AI companies may want to consider ETFs that hold pure-play firms across the full value-chain of artificial intelligence, targeting both the AI developers as well as the AI enablers.

• AI Developers: Companies that develop various forms of artificial intelligence such as natural language processing, generative AI, pattern recognition or predictive analytics.
• AI Enablers: Companies that produce various forms of technology such as cloud services or AI-oriented chips which enable the development of AI.

CONCLUSION

66 years after the birth of artificial intelligence at the Dartmouth workshop of 1956,¹¹ ChatGPT might be the most impressive AI tool yet. While new use cases are still being discovered, we believe that ChatGPT and other forms of AI could continue to impact wide swaths of the economy. People looking to invest in AI may want to consider ETFs that provide exposure to pure-play stocks across the theme’s value chain.

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Originally Posted February 8, 2023 – How ChatGPT and AI might impact investors

^© 2023 BlackRock, Inc. All rights reserved.

¹ Yahoo, Steve Mollman, 12/9/22

² IBM, “What is a neural network?”

³ Sciencefocus.com, “ChatGPT: Everything you need to know about OpenAI’s GPT-3 tool”

⁴ Morningstar, returns from 11/30/22 through 1/27/23

⁵ International Data Corporation, 7/29/22, “IDC forecasts 18.6% compound annual growth for the artificial intelligence market in 2022-2026”

⁶ Shopify, Digital Ad Spend 2021-2026

⁷ CBS News, 1/26/26 Megan Cerullo

⁸ U.S. Chamber of Commerce, Understanding America’s Labor Shortage

⁹ Oxford, “Art for Our Sake: Artists Cannot be Replaced by Machines”, May 2022

¹⁰ NYT, “A.I. is Becoming More Conversational, But is it More Honest?”, 1/10/23

¹¹ Dartmouth.edu, “Artificial Intelligence Coined at Dartmouth”

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