The Robots Have Landed on Wall Street. They’re Coming for Your Portfolio.

ChatGPT and its artificial intelligence (AI) precursors are all the rage.

“Chat” is really a brand. The initials GPT stand for generative pre-trained transformer architecture that uses large language models (LLM) and natural language processing (NLP) to answer queries (called “prompts”) posed in plain language with plain language replies. In fact, AI and GPT together are almost the only drivers of positive stock market performance today.

A small group of companies with advanced capabilities in AI/GPT (Microsoft, NVIDIA, Google, Apple, and a few others) are rallying sharply on the profit and productivity potential offered by the new technology. If the AI/GPT plays were removed from stock market indices, the remainder of the stocks would be down on a year-to-date basis.

Whether this performance is a bubble or a genuine leap based on fundamentals remains to be seen. Still, there’s no doubt about the impact.

That said, GPT has a dark side that is quickly coming to the fore. Malign actors can use the speed and comprehensiveness of GPT to produce fake images and content and push that content into social media and mainstream channels to cause market rallies and crashes.

For market manipulators, inside traders, and geopolitical adversaries, GPT is one of the best tools ever invented. This article provides a look at a recent case in point.

On Monday, May 22, 2023, a story appeared on ZeroHedge, Facebook, Twitter, and several other media channels showing a large building on fire near the Pentagon, along with speculation that a terrorist attack might be underway. Stocks immediately began to sell off.

Within minutes, it was realized that the building fire photo was fake (based on some windows that had an irregular instead of uniform appearance), and indeed the entire story was fake. The image of the building with billowing smoke was generated by AI.

Investors should get used to this type of AI-induced panic. The AI/GPT technology is already in the hands of bad actors, and they won’t stop using it just because this one fake was detected quickly. In fact, most stock trading is done by computers primed to look for keywords in breaking news.

This was a case of computers selling stock based on what another computer was reporting with the use of a fake photo and fake news. It’s computer versus computer using AI/GPT as advanced weaponry.

Investors need to understand these technological developments before their portfolio holdings are badly damaged. One thing we can be sure of is that the threat is not going away.

Corporate leaders and institutional fiduciaries looking to incorporate state of the art predictive analytics to their risk mitigation and strategic analysis should click the link to learn more about Raven Predictive Analytics®.