Investors Turn to AI Chatbots for Stock Market Advice

Since its launch, ChatGPT has transformed numerous industries, and now it's making significant waves in the world of personal finance. A growing number of retail investors, at least one in ten, are now asking chatbots like ChatGPT for stock tips. This trend is fueling an unprecedented boom in the robo-advisory market, but experts caution that this high-risk strategy isn't ready to replace traditional financial advice.

The AI-Driven Investment Boom

The impact of artificial intelligence on investing is staggering. Thanks to AI, anyone can now access stock selection tools, monitoring, and investment analysis that was once the exclusive domain of major banks and institutional investors.

This accessibility is driving explosive growth in the robo-advisory market. This sector, which includes all algorithm-driven financial advice providers, is forecasted to grow from US$61.75 billion in revenue last year to an incredible US$470.91 billion by 2029. That's a nearly 600 percent increase, according to data from Research and Markets.

The user adoption rates tell a similar story. A global survey of 11,000 retail investors by broker eToro revealed that 13 percent already use AI tools like ChatGPT or Google's Gemini for investment decisions. About half of all respondents said they would consider using them. In the UK, a survey by Finder found that 40 percent of people have used chatbots for personal finance advice.

From Professional Tools to Public Access

For former financial professionals, these tools can be a game-changer. Jeremy Leung, who spent nearly two decades as an analyst for UBS, has been using ChatGPT for stock analysis since leaving the bank.

“I no longer have the luxury of a Bloomberg (terminal), or those kinds of market-data services which are very, very expensive,” Leung said. “Even the simple ChatGPT tool can do a lot and replicate a lot of the workflows that I used to do.” He does, however, caution that the tool can miss crucial analysis because it cannot access data behind a paywall.

The Risks and Rewards of AI Stock Picking

While the potential is clear, the risks are just as significant. An experiment by Finder highlights the upside. In March 2023, they asked ChatGPT to create a portfolio of 38 high-quality stocks. That portfolio, which includes giants like Nvidia and Amazon, has since surged nearly 55 percent, outperforming the UK's ten most popular funds by almost 19 percentage points.

However, experts urge extreme caution. “AI models can be brilliant,” said Dan Moczulski, UK managing director at eToro. “The risk comes when people treat generic models like ChatGPT or Gemini as crystal balls.” He warns that general AI can misquote figures, rely too heavily on past events to predict the future, and push established narratives. Even ChatGPT itself warns users not to rely on it for professional financial advice.

Getting the Best Results from AI

Successfully using ChatGPT for stock picking requires a degree of financial know-how. The quality of the output depends heavily on the quality of the input. Leung shared that he uses specific, context-rich prompts to get better results, such as asking the AI to "assume you’re a short analyst, what is the short thesis for this stock?" or to "use only credible sources, such as SEC filings."

“The more context you provide, the better the responses,” he explained.

The biggest unknown is how these AI-guided investors will fare when the market inevitably turns. With US stocks near record highs, many strategies look successful. The real danger is that investors who are making money with AI in a bull market may not have the risk management skills to navigate a downturn. As Leung noted, “If people get comfortable investing using AI and they’re making money, they may not be able to manage in a crisis or downturn.”