Market Commentary:  Artificial Intelligence

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Golden Algorithms:  How Artificial Intelligence is Pioneering the New Digital Gold Rush
In subscribing to any discourse surrounding financial markets, one is hard-pressed to ignore the increasing presence of buzzwords such as “AI”, “ChatGPT”, or maybe even “Large Language Models” or “GPUs”.  In today’s market communication, we aim to unpack some of the implications of artificial intelligence on today’s financial markets.

AI’s Dual Impact on Big Tech and Corporate Consumers

Since the advent and release of “ChatGPT” as AI for public consumption in late 2022, investors have become enthralled with both the idea of artificial intelligence companies and companies that indicate they plan on integrating AI into their business operations.  In fact, during earnings calls for the fourth quarter of 2023, there were 179 mentions of artificial intelligence among companies within the S&P500 index.

While several companies have emerged as beneficiaries of the newfound AI craze, seven of the largest companies in The United States have seen a disproportionate benefit as compared to the rest of the market.  They also happen to be seven of the largest companies in the world; Google, Microsoft, Nvidia, Apple, Amazon, Meta, and Tesla.  What you may remember as the “nifty fifty” in the 1970s or the FAANG stocks in the 2010s, has now become known as the “Magnificent 7”.

Striking it Rich or Finding Fool’s Gold?

While the returns we saw in 2023 and to begin 2024 have been overwhelmingly positive, it is important to understand the “narrowness” of these returns.  The S&P 500 gained 26% in 2023; if we remove the aforementioned “Magnificent 7” from the equation, that return figure drops to around 8%.  Yes, a positive return in both cases, but this highlights a significant concentration of performance, indicating a narrow base being responsible the market’s advances.

Let’s not become too wrapped up in what is described as “AI FOMO” – or the fear of missing out. There are both opportunities and risks when it comes to AI, like anything in the investment world. Nvest Financial seeks to find opportunities to invest in top-tier companies that may be influenced by AI. For more information, please contact us at .

Sources: YCharts, FactSet