More and more hedge funds are starting to deploy AI for stock picking and financial analysis. And the logic behind this practice is clear: if AI can write, solve complex mathematical problems, detect messages hidden in artwork and solve riddles, why can’t it analyze stocks and predict their movements? Some analysts were of the view that when it comes to stock picking and investing in general, AI has a lot of catching up to do because there are just too many moving parts in this domain that seem to apparently confuse AI systems. A report by Bloomberg quoted data which said that a Eurekahedge index of 12 funds using AI has trailed its broader hedge fund index by about 14 percentage points over the past five years. The report also quotes Plexus Investments, which tracks the performance of AI funds. The firm said that only 45% of its tracked funds outperform their respective benchmarks.
But the spectacular learning curve of AI is making it do the catching up much earlier than expected. As companies pour billions in large language models and training systems to refine AI, these programs are getting better by the second. The Bloomberg report also cited Andreas Vogel, a senior analyst at Plexus, who said:
“Today, AI and machine learning can already compete with traditional fund managers.”
"AI Epiphany"
The Bloomberg report also talked about Rayliant Global Advisors, founded by quant investor Jason Hsu. Hsu had an “AI epiphany” many years ago when he looked at a hypothetical investing strategy that used the power of machines to beat the market
“It took us a while to convince ourselves. Then we finally got to a place where we said, ‘We see the value. We get the benefits.’”
Our Methodology
When you prompt ChatGPT to recommend stocks, it immediately comes up with generic statements, saying as a large language model it is not trained to recommend stocks. However, we asked ChatGPT to act as a professional stock advisor and recommend at least 15 stocks that it believes have long-term growth potential. Here is what ChatGPT said before listing the 15 stocks mentioned in this article:
I can provide you with a list of 15 stocks that were considered promising as of my last knowledge update in September 2021. However, please note that the stock market is subject to fluctuations and changes, and it's important to do your own research and consider consulting with a financial advisor for the most current investment advice. Here are 15 stocks that were well-regarded as of that time.
We retailed ChatGPT's rankings. Some top recent stock picks of ChatGPT include Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT).
NVIDIA Corporation (NASDAQ:NVDA) is one of the top stock recommendations from ChatGPT. NVIDIA Corporation (NASDAQ:NVDA) has indeed garnered attention in the Wall Street across the board, thanks to its huge gains coming on the back of the AI boom. However, NVIDIA Corporation (NASDAQ:NVDA) was slipping as of October 18 amid reports that the US government would now allow the company, among other semiconductor firms, to export chips to China. However, NVIDIA Corporation (NASDAQ:NVDA) said that these restrictions would not have a meaningful impact on company finances.
As of the end of the second quarter of 2023, 175 hedge funds tracked by Insider Monkey had stakes in NVIDIA Corporation (NASDAQ:NVDA).
Artisan Developing World Fund made the following comment about NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2023 investor letter:
“Our focus on scalable business models has its roots in our economic framework. As potential output moderated in most emerging countries, it became clear to us affordability was not improving and that low penetration was necessary but not sufficient for value creation. We eliminated companies from the portfolio that were struggling to generate revenue significantly in excess of fixed costs, often replacing them with passport companies such as NVIDIA Corporation (NASDAQ:NVDA) and Airbnb that were economically tied to emerging markets. Over a period of time, we have been successful in redefining the emerging markets opportunity set around real per capita GDP increases, growth in the middle class, revenue velocity and demand fulfilment. Combined with changes in the market backdrop that have resulted in privileged competitive positions for companies with financial strength and access to capital, we find our opportunity set expanding anew to include companies that are both based in emerging markets and conducive to value creation.”
ChatGPT thinks The Home Depot, Inc. (NYSE:HD) has long-term growth potential. The Home Depot, Inc. (NYSE:HD) is however struggling this year amid housing market tremors and rising mortgage rates. In August The Home Depot, Inc. (NYSE:HD) posted second quarter results. GAAP EPS in the quarter came in at $4.65, beating estimates by $0.20. Revenue came in at $42.92 billion, beating estimates by $690 million.
A total of 68 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in The Home Depot, Inc. (NYSE:HD). The biggest stakeholder of The Home Depot, Inc. (NYSE:HD) was Israel Englander’s Millennium Management which owns a $561 million stake in the company.
Madison Sustainable Equity Fund made the following comment about The Home Depot, Inc. (NYSE:HD) in its second quarter 2023 investor letter:
“The Home Depot, Inc. (NYSE:HD) celebrates 30 years of giving back. Team Depot was created in 1993 as a way of organizing associates who were eager to volunteer in their communities. For 30 years, Team Depot associates have worked side by side with non-profits around the United States. Focus areas include spending time with the elderly and activities with at risk youth. Team Depot also improves the homes and lives of veterans and helps communities impacted by natural disasters.
13. Johnson Controls International plc (NYSE:JCI)
Johnson Controls International plc (NYSE:JCI) ranks 13th in our list of ChatGPT stock advice and recommendations. In September, Johnson Controls International plc (NYSE:JCI) was upgraded to Buy from Hold by HSBC. HSBC thinks that Johnson Controls International plc (NYSE:JCI) is undervalued after a fall in share price following the company’s quarterly results announcement in August.
As of the end of the second quarter of 2023, 39 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Johnson Controls International plc (NYSE:JCI). The biggest stakeholder of Johnson Controls International plc (NYSE:JCI) was Phill Gross and Robert Atchinson’s Adage Capital Management which owns a $385 million stake in the company.
ClearBridge Aggressive Growth Strategy made the following comment about Johnson Controls International plc (NYSE:JCI) in its Q4 2022 investor letter:
“On an individual stock basis, positions in Broadcom, Comcast, Johnson Controls International plc (NYSE:JCI), Madison Square Garden Sports and Twitter were the leading contributors to absolute returns during the period. HVAC and building services provider Johnson Controls, meanwhile, saw a normalization of supply chain and semiconductor shortages lead to better operating results and subsequent strong performance.”
Warren Buffett-led Berkshire Hathaway Inc. (NYSE:BRK-B) made it to the list of ChatGPT's recent stock advice and recommendations. In August Berkshire Hathaway Inc. (NYSE:BRK-B) gained after the company posted second quarter results. Operating earnings in the period jumped 6.6% year over year, driven by growth in insurance segment. Berkshire Hathaway Inc. (NYSE:BRK-B) bought back about $1.4 billion of its shares during the period.
As of the end of the second quarter of 2023, 109 hedge funds out of the 910 funds tracked by Insider Monkey reported having stakes in Berkshire Hathaway Inc. (NYSE:BRK-B).
Banking giant JPMorgan ranks 10th in our list of ChatGPT stock advice and recommendations. The company is apparently benefiting this year from customer exodus from small, regional banks following the banking crisis of 2023. Earlier this month the company posted strong Q3 results. GAAP EPS in the period came in at $4.33 beating estimates by $0.39. Revenue jumped about 22% year over year to $39.87 billion, surpassing estimates by $470 million.
JPMorgan gave important business updates during its latest Q3 earnings call and said:
In Banking & Wealth Management, revenue was up 30% year-on-year, driven by higher NII on higher rates. End-of-period deposits were down 3% quarter-on-quarter. We ranked number one in retail deposit share based on FDIC data and continue to solidify our leadership position in key markets. Client investment assets were up 21% year-on-year, driven by market performance and strong net inflows as we continue to capture yield-seeking flows from our consumer banking customers. In Home Lending, revenue was down 2% year-on-year given a smaller market. Originations of $10.3 billion were up slightly quarter-on-quarter, but they remain down 15% year-on-year. Moving to Card Services & Auto, revenue was up 7% year-on-year, driven by higher Card Services NII on higher revolving balances, partially offset by lower Auto lease income.
Patient Capital Opportunity Equity Strategy made the following comment about JPMorgan Chase & Co. (NYSE:JPM) in its Q2 2023 investor letter:
“Many technicians and quantitative strategists expect growth stocks to continue to outperform. There’s a good shot that’s right but longer term, we remain more optimistic on classic value. People remain enamored with growth investing. Value stocks trade at a discount to historical valuations unlike growth stocks, which trade at a premium. Take two high quality stocks as an example, Costco (“growth”) vs. JPMorgan Chase & Co. (NYSE:JPM) (“value”).
With close to seven decades of consistent dividend increases, The Procter & Gamble Company (NYSE:PG) is a hot choice of both retail and institutional investors. ChatGPT also recommended The Procter & Gamble Company (NYSE:PG) when it was asked to come up with stock recommendations for long-term gains.
As of the end of the second quarter of 2023, 74 hedge funds out of the 910 hedge funds tracked by Insider Monkey had stakes in The Procter & Gamble Company (NYSE:PG). The most significant stakeholder of The Procter & Gamble Company (NYSE:PG) was Terry Smith’s Fundsmith LLP which owns a $736 million stake in the company.
ClearBridge Sustainability Leaders Strategy made the following comment about The Procter & Gamble Company (NYSE:PG) in its Q2 2023 investor letter:
“Reinforcing defensive exposure and pushing our consumer staples positioning from underweight to overweight the benchmark, we added The Procter & Gamble Company (NYSE:PG), a leading consumer products company with leading franchises in a variety of stable categories, including fabric care, baby, beauty and health. It is a high-quality company with a track record of superior growth, market share gains and attractive returns on capital. It also has defensive attributes when economic conditions deteriorate. Procter & Gamble is a sustainability leader with a demonstrated commitment to addressing environmental and social objectives in how it manages the business, and it has above-average corporate governance practices. Many Procter & Gamble products have a positive impact by promoting hygiene, self-care or health.”
Johnson & Johnson (NYSE:JNJ) is another dividend stock recommended by ChatGPT for long-term gains. Johnson & Johnson (NYSE:JNJ) was rising on October 17 after the company posted excellent third quarter results. Adjusted EPS in the quarter came in at $2.66, beating estimates by $0.14. Revenue in the period jumped 6.8% year over year to $21.35 billion, surpassing estimates by $300 million.
A total of 88 hedge funds out of the 910 hedge funds tracked by Insider Monkey had stakes in Johnson & Johnson (NYSE:JNJ). The biggest stakeholder of Johnson & Johnson (NYSE:JNJ) was Ray Dalio’s Bridgewater Associates which owns a $527 million stake in the company.
In addition to dividend stocks, ChatGPT also likes tech plays like Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT).
ClearBridge Large Cap Value Strategy made the following comment about Johnson & Johnson (NYSE:JNJ) in its Q3 2023 investor letter:
“The health care space provided some opportunities in the quarter, as we increased our exposure to medical device company Becton, Dickinson as well as large cap pharmaceutical company Johnson & Johnson (NYSE:JNJ). Johnson & Johnson recently spun out its consumer health care business, becoming a more focused yet broadly diversified pharmaceutical and medtech company.”
Earlier this month, Seaport Global started covering Mastercard Incorporated (NYSE:MA) with a Buy rating. Mastercard Incorporated (NYSE:MA)’s analyst Jeff Cantwell thinks the company’s volume growth is better than Visa’s. He also thinks that Mastercard Incorporated (NYSE:MA) has secured "several new wins that will convert and be additive.”
Insider Monkey’s database of 910 hedge funds shows that 139 hedge funds had stakes in Mastercard Incorporated (NYSE:MA). The most significant stakeholder of Mastercard Incorporated (NYSE:MA) during this period was Charles Akre’s Akre Capital Management which owns a stake worth over $2.3 billion in Mastercard Incorporated (NYSE:MA).
Baron FinTech Fund made the following comment about Mastercard Incorporated (NYSE:MA) in its second quarter 2023 investor letter:
“We modestly trimmed Visa Inc., Mastercard Incorporated (NYSE:MA), and Accenture plc to manage the position sizes and raise capital to fund purchases elsewhere. These stocks remain full-sized positions and high-conviction ideas in the Fund.
Investment firm BMO recently rated Visa Inc. (NYSE:V) as Outperform and added the stock to its dividend stocks list.
Baron FinTech Fund made the following comment about Visa Inc. (NYSE:V) in its second quarter 2023 investor letter:
“We modestly trimmed Visa Inc. (NYSE:V), Mastercard Incorporated, and Accenture plc to manage the position sizes and raise capital to fund purchases elsewhere. These stocks remain full-sized positions and high-conviction ideas in the Fund.
EV giant Tesla, Inc. (NASDAQ:TSLA) is one of the top stock recommendations by ChatGPT for long-term gains. Out of the 910 hedge funds tracked by Insider Monkey, 79 hedge funds reported owning stakes in Tesla, Inc. (NASDAQ:TSLA) as of the end of the second quarter.
Baron Partners Fund made the following comment about Tesla, Inc. (NASDAQ:TSLA) in its Q2 2023 investor letter:
"Many factors contributed to the strong performance of our largest Disruptive Growth position, Tesla, Inc. (NASDAQ:TSLA), in the period. Investors’ concerns regarding Tesla, Inc. (NASDAQ:TSLA) in 2022 continue to dissipate, and the company’s business has continued to grow materially, although at below peak margins. Tesla’s deliveries in China are recovering. The company’s newest factory in Texas has ramped production and should contribute to improved domestic sales and margins. U.S. government policies have lowered the cost to own Tesla vehicles, while also reducing the company’s battery production expenses.
Like Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT), TSLA is loved by both AI stock pickers and hedge funds.
