AI In the Stock Market: Savior or Armageddon?
The rise of Artificial Intelligence (AI) in recent years has brought about one of the most dramatic changes in human history. AI is now an instrumental part of daily life, whether it be through smart home devices, social media filters, healthcare management, or even video games. Whether we like it or not, AI is sticking with us for good. Recent turbulence in the economy — caused by a number of things (COVID, inflation, war, and more) — has raised some questions about economics, finance, and what the future holds for AI. More specifically, the question we should be asking ourselves is: how will advanced AI affect the stock market? And if it does, will it be for better or for worse?
To answer our questions, we first have to look at how good AI can become at predicting market trends. This topic is quite controversial, with many saying that AI will soon be able to predict the market with 99% accuracy and others saying it will never come close. What’s unique about the stock market is its extreme fluctuations, with some days being exceptionally phenomenal and others being atrocious. For example, there have been days where Tesla has risen 20% and others where the stock has dipped 12%. The reason for this is that whether traders buy or sell stock very much depends on external circumstances: the political climate, significant technological breakthroughs, whether or not the CEO of a company just resigned, inflation, and the list goes on. Therefore it is fair to say that it would be rather difficult for an advanced AI to process all of these different factors. Because besides predicting solely based on the numbers that pop up on the screen, AI would have to analyze virtually every possible scenario that would affect a certain company’s stock. You can’t beat the stock market based on purely technical and quantitative analysis. There will always be other factors that you have to take into account, and that is precisely what AI would have to do to predict the stock market with the highest accuracy possible.
Second, we must look at how AI is currently used in the stock market. Before the switch to computerized trading in 1996, trading was an extremely tedious process. The buying and selling of shares often involved making calls and mailing stock certificates, which could sometimes take weeks. Nowadays, however, with technology at our fingertips, trading is almost instantaneous. Despite advancements made in the past two decades, AI has only been recently implemented to aid in investment. It has, however, been instrumental in developing the financial scene on Wall Street. As discussed, while AI cannot account for every possible scenario, it can try to make predictions using data from the past. It can look at how a specific stock has done over the past couple of years and make predictions based on pure technicality. It can predict reasonably well and has become crucial for many people when making investment decisions. It is a guarantee that as AI becomes more advanced, it will become better at predicting price increases, drops, recessions, and more.
So what does the future hold for AI in the stock market? While, as of now, AI isn’t anywhere near to being able to decode the stock market entirely, it could become a genuine possibility in the future. Indeed, a world where AI can out-compete humans in the stock market is terrifying to imagine. If AI can actually learn to perfectly analyze and predict the market, a tiny amount of people would likely be able to become wealthy very quickly. Only those able to afford such a one-of-a-kind technology would be able to benefit from it, and everyone else would have to simply sit by and watch as Wall Street gets taken over by technology. After this happens, however, it would be effortless for AI to seep into other parts of the financial sector. While this is all very horrifying to contemplate, we shouldn’t worry about an AI takeover in the near future.
