Now that AI is playing a major part in investment and trading plans, do you subscribe to this way of trading

Eoin Treacy's view

Thank you for this topical question. The advent of large language models has ignited a mania in speculation about the capabilities of artificial intelligence. Amid guesses about what will be possible in future, let’s first nail down what is possible in the present.

AI can compose music, compile art and write academic papers. It can also write business emails and respond convincingly to subjective questions. These are inspiring qualities and form the basis for the expected productivity gains being priced into the stock market.

When it comes to predicting what the price level of the stock market will be tomorrow, next week, month or year, I do not think AI is in a better position to do that than the computer programs already devoted to the task.

Quantitative trading has been a feature of the market for decades and the algorithmic trading has enhancing that over the last 15 years. Perhaps AI will democratise access to these kinds of models but that will also close the window of opportunity as spreads narrow.

The question most investors are asking is whether to load up on the AI champion stocks at these price levels. It is easy to feel like a Cassandra in this environment because we are in a mania.

Valuation metrics are extraordinary for companies like Nvidia but the price continues to rise despite monetary conditions tightening. That only thing to do if one is compelled to participate is to have a very clear idea of where the exit sign is when the cycle turns.