How Artificial Intelligence Predicts Earnings Better Than Wall Street
Hello, investor! Today we want to tell you about an amazing discovery: it turns out that artificial intelligence (AI), in particular ChatGPT, can predict company earnings more accurately than some Wall Street pros. Sounds fantastic, right? But it’s a real fact!
☝️ Why is this important?
1. More accurate forecasts mean a better opportunity for investors to make money.
2. AI helps save time: instead of spending hours reading complex reports, you can get the first conclusions in a matter of minutes.
3. Accessibility: now it’s not just a toy for large funds – each of us can use the technology!
⚙️ How does ChatGPT work?
• Data collection: Researchers uploaded thousands of company financial reports to ChatGPT (without names and dates, so that there would be no “peeping”).
• Report analysis: AI looked at the numbers (e.g. expenses, profit, sales) and deduced whether profits would increase next year.
• Forecast: ChatGPT decided what the change would be: large, medium or small. At the same time, it assessed its confidence in each forecast.
The results of the study showed that:
ChatGPT correctly determined the direction of profit change 60% of the time.
Wall Street analysts (a month after the reports were released) guessed 52.7% of the time.
Incredible, right? ⬆️
✅ Benefits and risks
Benefits:
• Fast processing of large amounts of information.
• A fresh look at financial indicators without “human” emotions.
• The ability to create investment strategies based on AI forecasts.
Risks:
• Even 60% is not 100%. You need to do your own analysis to avoid falling into the trap of “automatic confidence.”
• The algorithm does not take into account certain aspects (such as news, political risks, or sudden market changes).
• Over time, accuracy may decrease if the model is not updated and fed fresh data.
💼 How to use it?
1. Check companies: Open a company report, ask ChatGPT to summarize the main figures and make a forecast.
2. Compare: Compare the AI’s advice with analysts’ conclusions or your own calculations.
3. Make a decision: If the forecasts match your reasoning, that’s a good sign, but still consider all the risks before investing.
🔥 Can you make money from it?
The researchers even created test portfolios of stocks, where, for example, they bought stocks of companies for which the AI predicted earnings growth and sold (shorted) stocks of companies with declining earnings. As a result, such portfolios outperformed the market in many cases.
But don’t get too excited! Such strategies require more time, resources, and a deep understanding of the market.
Who conducted this study and how much can it be trusted?
The study was carried out by three researchers from the University of Chicago – Alex Kim, Maximilian Muhn, and Valeri Nikolaev. They uploaded financial reports of thousands of companies over many years to ChatGPT, removing the names and dates so that the AI would not know which company it was analyzing. This scientific approach ensured the objectivity of the results and minimized the risk of “spying”. The work is published with detailed explanations and tests, so other researchers can test the method and confirm its reliability. In short: the research is serious and you can trust it, although it is always worth remembering that no model gives 100% guarantees.
🤝 Conclusion
AI like ChatGPT is a tool that can help you understand the intricacies of corporate reports and predict company profits. It can be a useful “analytical assistant”, but do not forget about your own verification and common sense. There are always risks in investing, and the responsibility lies with you and me, not the program.
So, if you want to take advantage of AI:
1. Prepare: learn the basics of reading financial documents.
2. Verify: do not trust one source 100%.
3. Diversify: always have several investment areas.
Good luck in the world of investing! 🚀