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The Forefront of Innovation: ChatGPT through an Investment Lens

On November 30th, 2022, a Silicon Valley-based company called OpenAI quietly released their latest artificial intelligence project called ChatGPT to the masses on the worldwide web. Less than two months later, the company received a valuation nearing $30 billion and global tech leaders found themselves scrambling to keep up in what TIMES magazine recently dubbed “The AI Arms Race.” This article explores what ChatGPT is, why it matters, and what it means for investors looking to incorporate artificial intelligence into their portfolio.

In the simplest explanation, ChatGPT uses artificial intelligence (AI) language processing to understand an input, and AI language modeling to produce a corresponding output. You (the human) provide the input in the form of a question, prompt, task, etc. The program then scours a massive amount of data from the open internet to interpret your input and generates the most likely response based on language patterns and word associations it detects in the data. The result is a strikingly human-like, well-constructed, and likely accurate answer to the input you provided.  For a better idea, here’s an example:

Human Input: “Why might ChatGPT be a good topic for an article in a local business journal?”

ChatGPT Output: “ChatGPT could be a good topic for an article in a local business journal because it’s a cutting-edge technology with practical applications in various industries, can improve efficiency and customer satisfaction, and is a cost-effective solution for businesses.”

The chatbot marks a significant leap forward for the everyday applications of artificial intelligence, and its sweeping rise to popularity revealed a massive opportunity for any company able to establish themselves at the forefront of AI technology. In December 2022, that opportunity was reinforced when a prominent market research organization released their estimates of a 22.97% annual growth rate for the AI market over the next decade. As a direct result, global tech giants like Microsoft and Google have committed enormous dollar amounts to accelerate their AI investment and protect their metaphorical seat at the table.

Big Tech weren’t the only ones with wide eyes after the ChatGPT shockwave, and many individual investors also rushed to increase the AI exposure in their own portfolios. Since the release of ChatGPT, the NYSE Global Robotics and Artificial Intelligence Index has risen +8.7%, while the S&P 500 has returned -3.15%.

You’d be hard-pressed to deny the disruptive potential of artificial intelligence and wanting a financial stake in the industry is only natural when a breakthrough like ChatGPT provides a firsthand glimpse into how powerful the technology can be. In those moments, it becomes dangerously easy to overemphasize the rewards, overlook the risks, and make a decision that jeopardizes your financial future. Despite its continued progress, artificial intelligence remains in the infant stages of its lifecycle and trying to forecast which names will be the big winners is a speculative effort at best. Maintaining a broad exposure to the industry increases your opportunities to share in the victor’s spoils while helping withstand the inevitable headwinds along the way. In other words, TIME magazine’s declaration of the “AI Arms Race” may be justified, but it doesn’t mean your portfolio should be rushed to the front lines.

At Pathfinder Wealth Consulting, our team of CERTIFIED FINANCIAL PLANNER™ professionals have extensive knowledge and experience crafting a comprehensive financial plan that is specific to your life’s goals and needs. Part of this process includes defining your individual risk profile and creating an asset allocation to help you achieve your financial goals while mitigating unnecessary threats to your portfolio along the way. To learn more about how our firm can establish you on a path to financial independence, give us a call at 910.793.0616. We are here to guide you forward.