Sentiment Analysis

AI, Tech Stocks, and Bubbles

In 1720, a frenzy gripped London. The South Sea Company, promising riches from South American trade, saw its stock price skyrocket from £100 to nearly £1,000 in six months. Isaac Newton initially made a handsome profit of £7,000 from the bubble. Swept up in the excitement, he reinvested, only to lose £20,000 (equivalent to millions today) when the bubble burst. The genius who unraveled the mysteries of gravity and light ruefully remarked, "I can calculate the movement of the stars but not the madness of men."

Three centuries later, we find ourselves in a strikingly similar position. Instead of exotic trade routes, we're captivated by the promise of artificial intelligence. Tech stocks, particularly those associated with AI, have experienced meteoric rises reminiscent of the South Sea bubble. Yet, recent sharp declines in the stock market have sent tremors through the tech sector, leaving investors and analysts questioning the sustainability of AI-driven growth. Personally, I think it’s a lot of short-term thinking, but I’ll get to that point later.

Recent sharp declines in the stock market have highlighted the vulnerability of tech stocks amid economic uncertainty. On Monday, August 5th, the Dow Jones Industrial Average posted its worst day in nearly two years, with significant losses across major indices. The Dow Jones Industrial Average (DJIA) dropped by 2.6%, The Nasdaq Composite fell by 3.43%, and the S&P 500 declined by 3%. This global market sell-off, fueled by recession fears and concerns over Federal Reserve policies, has profound implications for tech stocks, particularly those heavily involved in AI.

On August 8th, the S&P 500 advanced 2.3%, closing at 5,319.31 and posting its best day since November 2022. The Dow Jones Industrial Average surged 683.04 points, or 1.76%, to 39,446.49. The Nasdaq Composite added 2.87%, ending at 16,660.02.

Those that Fail to Learn from History: The Dot-Com Bubble

The dot-com bubble of the late 1990s provides a historical parallel. Like today's AI stocks, tech stocks experienced rapid growth followed by sharp declines due to overvaluation and speculative investment. However, the underlying technology eventually led to significant advancements and long-term growth. It brought us massive broadband buildouts, data center investment, and technological innovation that drove the development of the Internet. Today, we are building AI infrastructure from which society will reap benefits for many years.

Artificial Intelligence Will Continue To March On

Warren Buffet is the king of long-term thinking; he’s become one of the wealthiest men in the world that way. One of my favorite quotes of his:

Sure, there are high-flyers in AI, but if you had invested in Pet.com, Webvan, or eToys.com around 2000, you’d have nothing to show. Today, PetSmart, DoorDash, and Amazon are all thriving businesses. But they seemed to have been much higher-quality companies with product offerings that were better timed in the market than the short-term hyped companies that jumped on the hype rather than anticipating when people would buy into the market.

My takeaway is that recent market sell-offs highlight tech stock volatility, but AI remains a strong long-term growth driver. Despite short-term fluctuations, the strategic development and adoption of AI technologies position our economies to reap substantial long-term value, echoing the resilience seen in the aftermath of the dot-com bubble. Read the deep dive below to get my thoughts on Public AI Stocks.

AI Efficiency Edge - Quick Tips for Big Gains

AI for Financial Success

This week, I combined the AI Toolbox with my tip to use AI apps to draw financial insights. This is a great use case because AI is particularly good at analyzing data.

For example, I was a huge fan of Mint when it came out, but since then, AI has augmented numerous other solutions, including Mint. Here are five apps that benefit from AI to help you be more fiscally adept.

1. Simplifi by Quicken

Simplifi is an AI-powered personal finance app that offers:

• A user-friendly dashboard for tracking spending, cash flow, and bills

• Automated categorization of expenses and income

• Flexible budgeting tools

• Forecasting software to make personalized savings suggestions

• Excellent mobile apps

Simplifi stands out for its exceptional user experience and practical budgeting tools, making it one of the best AI-powered finance apps.

2. Mint (now part of Credit Karma)

While Mint itself has been discontinued, its features have been integrated into Credit Karma, which offers:

• AI-powered personal finance management

• Automated tracking of spending and budgets

• Credit score monitoring and improvement suggestions

• Personalized financial advice

Credit Karma/Mint is notable for being a free option that provides comprehensive financial insights.

3. Betterment

Betterment is an AI-enhanced investment management platform that:

• Creates personalized investment portfolios based on financial goals and risk tolerance

• Uses AI to rebalance and optimize investments automatically

• Provides tax-loss harvesting to improve after-tax returns

• Offers goal-based investing strategies

Betterment is particularly useful for those looking to automate their investment management.

4. Rocket Money (formerly Truebill)

Rocket Money uses AI to help users save money by:

• Analyzing spending patterns to identify areas for potential savings

• Automatically negotiating bills on behalf of users

• Canceling unwanted subscriptions

• Providing insights into spending habits and financial health

This app benefits those looking to cut unnecessary expenses and optimize their budget.

5. Vena Insights

While more geared towards businesses, Vena Insights is an AI-powered financial planning and analysis tool that:

• Uses Microsoft's AI and machine learning technology through embedded Power BI

• Provides interactive dashboards for financial data analysis

• Identifies critical business drivers and inefficiencies

• Generates predictions and detects unusual patterns in financial data

Vena Insights is particularly useful for finance teams and businesses leveraging AI for financial planning and analysis.

I highlighted these apps because they demonstrate how AI provides more personalized, efficient, and insightful financial management tools for personal and business use. They offer features ranging from automated budgeting and expense tracking to investment management and economic forecasting, all powered by artificial intelligence.

Enterprise AI Essentials - Your Weekly Deep Dive

Public AI Stocks

My first adult job was in finance. I hated it. 

I sold life, health, annuities, and mutual funds in my hometown. I didn’t like the job, but I loved what I learned. It’s stuck with me: how to look at a company's fundamentals, read financial reports, and evaluate metrics.

It’s not easy, but it’s been a valuable life skill. Check out the week's prompt below to see how I quantified that knowledge in a ChatGPT.

However, I think a more holistic view of how AI is affecting our public markets is missing. I always get the question, “What stocks are AI stocks?” To answer that question, I created the AIE AI Stock Index below, explaining which stocks are affected by AI and why.

Note: This doesn’t constitute financial advice. I am not advocating an AIE AI Stock Index for trading purposes but rather as an indicator of AI as it affects public markets.

The AIE AI Stock Index

The Artificial Intelligence Enterprises (AIE) Index comprises a curated selection of companies that significantly impact the AI landscape. This index includes companies solely focused on AI, those providing essential AI hardware and infrastructure, tech giants with substantial AI investments, AI-enabled industrial and consumer companies, AI-supporting software and services, and AI-related real estate. Follow the link below to see the logic behind each company's inclusion.

As I mentioned, this isn’t an investment vehicle of any kind. It’s just an equally weighted index of all the stocks I think have a significant artificial intelligence component. Here’s a breakdown of the categories.

Understanding the AI Transformation

Pure AI companies like C3.ai, UiPath, and Palantir Technologies are pioneering the development of AI solutions integral to digital transformation. These companies are improving business processes and fundamentally changing how businesses operate. Their innovations, from intelligent automation to big data analytics, enable companies to make smarter decisions and operate more efficiently. Though I can’t personally vouch for the quality of their solutions just what they are developing.

The Role of AI Hardware and Infrastructure

Hardware giants like NVIDIA, AMD, and Intel are powering the AI revolution. These companies provide the essential computational power for AI and machine learning workloads. Their advancements in GPUs and AI-optimized processors are driving AI capabilities to new heights. Additionally, infrastructure providers like Vertiv and Super Micro Computer ensure that the backbone for AI applications are robust and reliable.

Tech Giants and AI Integration

Tech behemoths like Microsoft, Alphabet, and Amazon are at the forefront of integrating AI into their vast ecosystems. Their investments in AI research and development are setting industry standards and showcasing the potential of AI to enhance product offerings and customer experiences. These companies' AI initiatives are crucial indicators of how AI becomes integral to mainstream technology and services.

AI in Industrial and Consumer Applications

AI's impact extends to industrial and consumer applications through companies like Symbotic and Tesla. From optimizing supply chain management to advancing autonomous driving, these companies illustrate how AI revolutionizes traditional sectors and creates new market opportunities.

Supporting Software and Real Estate

Software companies like Adobe and Synopsys are enhancing their products with AI, making them more efficient and user-friendly. Meanwhile, Digital Realty Trust highlights the critical role of data centers in supporting AI operations, emphasizing the need for scalable and reliable infrastructure.

Conclusion

My intent in creating the AIE Index is more to educate and learn how AI affects public markets. By observing the companies within this index, stakeholders can gain valuable insights into the trends, advancements, and market dynamics driven by AI. I believe this perspective is crucial for businesses leveraging AI to gain a competitive advantage in an increasingly digital world.

Prompt of the Week

Public Company Financial Analysis

This prompt is designed to guide a detailed and comprehensive financial analysis of a public company. It leverages various analytical techniques and compares the company’s performance with industry benchmarks. It provides clear instructions on the aspects to be analyzed and the types of reports to be used, ensuring a thorough assessment of the company's financial health.

How To Use This Prompt

The best way to use this prompt is to upload the financial reports from the company you want to analyze. I downloaded a quarterly announcement in a PDF from Nvidia to get the best trend analysis. For your analysis, I’d take quarterly and all 10-k filings between the current date and the last annual report. Then, I’d take a couple of years of annual reports to help with trend analysis. The only caveat is that you may run against ChatGPT’s context window. So, keep in mind how much data you are inputting. You may want to try this with Claude as it’s context window is much larger than ChatGPT’s.

# Objective

Analyze the financial health and performance of a public company using its financial reports, including quarterly, annual, and 10-K reports. Perform a detailed analysis of the balance sheet, income statement, and cash flow statement. Identify key financial ratios and trends to provide a comprehensive overview of its financial position. Compare the financial performance of this company with its industry peers. Highlight areas of strength and weakness, and provide recommendations for improvement based on industry benchmarks. Conduct both vertical and horizontal analysis of the income statement to evaluate revenue sources, cost structure, and profitability trends over time. Create a trend analysis of key financial metrics such as revenue growth, profit margins, and return on assets over the past five years. Summarize the company's liquidity, solvency, efficiency, and profitability, and make strategic recommendations based on your findings. Use the following financial documents and any additional relevant data for this analysis: [insert specific documents and data sources here].

# Instructions for the AI Model

- Balance Sheet, Income Statement, and Cash Flow Statement Analysis:

- Assess the financial health and performance.
Identify and calculate key financial ratios (e.g., current ratio, debt-to-equity ratio, return on equity).
Highlight significant trends and changes.
Industry Comparison:

- Select relevant industry peers.
-- Compare key financial metrics.
-- Identify areas where the company outperforms or underperforms its peers.
-- Provide recommendations for improvement.

-Vertical and Horizontal Analysis

-- Conduct vertical analysis of the income statement to evaluate the proportion of each line item relative to total revenue.
--  Perform horizontal analysis to assess year-over-year changes in revenue, expenses, and profitability.

- Trend Analysis

-- Create a trend analysis of revenue growth, profit margins, and return on assets over the past five years.
-- Identify patterns, anomalies, and potential risks or opportunities.

- Financial Health Summary and Recommendations

-- Summarize liquidity, solvency, efficiency, and profitability metrics.
-- Provide a comprehensive assessment of the company's financial health.
-- Offer strategic recommendations based on the findings.
Utilize Specific Financial Reports:

- Use quarterly, annual, and 10-K reports.

Incorporate any other relevant financial documents and data sources.

Here’s an example of Nvidia. I used the Nvidia Q1 2025 Fiscal results (yes, they run on a non-calendar year that ends in 2025) to test the prompt. I was pretty impressed with the results.

Feature Image Prompt

This week, I didn’t use Midjourney for the feature image; I used X.com, which has access to Grok, which uses the new Flux.1 model from Black Forest Labs. This model is getting a lot of buzz because of its high quality. Since Grok doesn’t have its vision model, it uses Flux. It also doesn’t have the same level of guardrails, so the ability to reference certain types of images, like those of public figures, is better than with ChatGPT DALL-E or Midjourney.

create an image that indicates stock performance for AI stocks  in a photograph format. 

The AI Efficiency Edge image was also created with Flux.1 as well.

Create  an illustration to describe AI tools for financial applications make it interesting and conveys usefulness in the style of Aaron Duplin.