People love to discuss the impact of AI, discuss the AI debate, and discuss the AI debate. But let’s see together what Actually issues: the impact on the financial markets.
A couple of weeks ago we wrote about how JPMorgan estimated that the hype for generative AI already had has generated approximately $1.4 trillion in market capitalization this year, primarily using the 2022 market value added by generative AI-adjacent stocks such as Alphabet, Microsoft, Meta, and Nvidia.
It seemed a bit weak (e.g. Alphabet was initially punished for the Perceived weakness of his ChatGPT Killer Bard), but investors are keenly looking for winners and losers from the potential AI revolution (hi Chegg!).
But three researchers — Andrea Eisfeldt, Gregor Schubert and Miao Ben Zhang — have it in a newly published study NBER card tried to come up with something a little more complete and systematic. Here is their conclusion, with Alphaville’s emphasis below:
What are the effects of recent advances in generative AI on business value? Our study offers a quantitative answer to this question for US publicly traded companies based on their workforce exposure to generative AI. Our new enterprise-wide measure of workforce exposure to generative AI is validated by earnings call data and has intuitive relationships to corporate and industry-level characteristics. Using Artificial Minus Human portfolios consisting of long companies with higher exposures and short companies with lower exposures, we show that companies with higher exposures achieved extra returns 0.4% higher on a daily basis than the returns of companies with lower exposures after the release of ChatGPT . While this release has generally been welcomed by investors as good news for the most exposed companies, there is wide variation between and within sectors, consistent with the substantial disruptive potential of generative AI technologies.
It’s quite big! A daily excess return of 0.4% translates into over 100% on an annual basis.
This can be mostly foam driven by the frankly isenseless levels of attention paid to ChatGPT since its launch, but as the researchers note, current investor opinion seems to be pretty unambiguous: “ChatGPT comes as a major shock to company valuations.”
Of course, the markets have a long and illustrious history when it comes to winnings overexcited about new technologies. And even when the hype eventually turns out to be true (e.g. railroads or the internet) they still have a hilarious tendency to lose money in the process.
Further reading:
— An artificial intelligence just passed a university exam (but don’t panic: it was just economics)
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