Artificial intelligence has undoubtedly sparked one of the most intense debates in recent market history. On the one hand, there are the believers – those that feel AI has the potential to deliver unprecedented economic growth, efficiency, and innovation. On the other, there are the skeptics, most of whom feel the market is getting a tad overexcited and somewhat frothy where AI-affiliated stocks are concerned.

The recent market sell-off seemed to offer a rare win for the latter, with several of the most influential names in the AI story seeing their share prices plummet. Chipmaker Nvidia, which is essentially a barometer of market sentiment towards AI, fell as much as 15% to just above $90 at one stage – levels not seen since the first half of May.

The sell-off also came just days after reports that hedge fund Elliott Management warned of Nvidia being in a ‘bubble’, and that the artificial intelligence technology driving the chipmaking giant’s share price is ‘overhyped’. Even the likes of Goldman Sachs have recently poured cold water on AI’s potential.

But the sell-off, at least as far as Nvidia is concerned, was brief. While its stock price is still some way off its record high of $135, it has rallied back to a solid $114 at the time of writing, with several big names viewing its price plunge as a bargain opportunity to buy more stock at a cheaper price. This is evidence that a substantial portion of investors feel the stock story – and by association, the AI story – has much more runway for growth ahead.

One fund manager said, “There’s a narrative in the market, which we disagree with, that there are signs of a slowdown in terms of AI applications. We think it’s too early to call that. There are enough developments to show that actually, generative AI is going to be game-changing.”

It is fair to say that the simmering debate around AI is reaching a boiling point. In terms of our view on Nvidia and the AI story more generally, followers of our blog series will know that we have thus far erred on the side of caution where fantastical claims around AI are concerned. Our view has been that the AI bubble debate ultimately hinges on the successful implementation of practical use cases in industries where developers see the most transformative potential – not least financial markets.

It is understandable why the industry has taken some time to adopt new AI technologies, especially given the major breakthrough for generative AI (ChatGPT) only began dominating headlines in late 2022. And with so much at stake in financial markets, it isn’t surprising that firms have taken a more cautious approach to integrating it into existing investment processes. But it appears real-life use cases are now beginning to gain traction.

Asset management giant Schroders this week reported that it has upped its use of AI, rolling out its in-house technology Genie to more staff across the business. As many as 1,200 of its employees now use Genie to assist with coding and software development tasks, draft meeting notes and review documents, while its investment management directors harness the software to review data and draft investment reports.

Elsewhere, the private equity sector is already starting to deploy AI-powered financial analysis and modelling tools that could automate significant elements of junior analysis roles for a fraction of the cost. One such tool is BX Atlas, a standardised LBO model that gives Blackstone’s buyout team a near-instantaneous readout of a deal’s feasibility.

AI is also having a considerable impact on transcription technology, helping to capture cleaner, more insight-rich text data that can inform smarter front-office decisions. Once a firm can capture complex trader audio data accurately and – critically – ensure it is compatible and customizable with the firm’s broader internal data sets, a host of opportunities emerge. For example, by processing a batch of previous conversations had between traders and counterparties, a firm can create sophisticated buy-side insights reports. These enable the firm to keep track of incoming trade ideas and understand which liquidity providers are offering the best service, ultimately enabling the firm to identify the best counterparty for a particular trade.

These are just a few examples of how AI is making a real-world impact on markets here and now, with new and exciting use cases for the technology arriving on trading floors every day. While we're not in the business of stock-picking, it seems clear that companies producing the foundational components for these AI-driven tools, like Nvidia, are poised to benefit. Whether the stock is slightly overpriced at this point in time seems beside the point. The more important facts are these: AI is already having a profound impact on the way financial markets operate, and the story has only just begun.

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