ChatGPT

ChatGPT is a large language model (LLM) developed by the research lab OpenAI. Think of it as a highly advanced chatbot, a form of Artificial Intelligence (AI) trained on a colossal amount of text and data from the internet. Its purpose is to understand and generate human-like text in response to questions and commands. Since its public release in late 2022, ChatGPT has captured the world's imagination, demonstrating breathtaking abilities in everything from writing poetry and code to explaining complex subjects in simple terms. This breakthrough triggered a massive investment wave, often dubbed the “AI gold rush,” as companies and investors scrambled to capitalize on the transformative potential of generative AI. For investors, ChatGPT represents both a revolutionary new technology to understand and a classic case study in market hype, demanding a careful and principled approach.

The launch of ChatGPT acted like a starting gun for a new market race. The public's immediate fascination with its capabilities created an intense hype cycle, sending the stock prices of any company associated with AI soaring. This frenzy was a perfect illustration of what Benjamin Graham called “Mr. Market” in one of his manic, euphoric moods. Key players saw their valuations skyrocket:

• Nvidia: The company's powerful Graphics Processing Units (GPUs) became the essential hardware for training and running large AI models, making it a primary beneficiary.
• Microsoft: A major investor in OpenAI, Microsoft moved quickly to integrate ChatGPT-like technology into its products, from the Bing search engine to its Office suite.
• Alphabet (Google): The long-time leader in AI research was spurred into action, accelerating the development and release of its own competing models, like Bard (now Gemini).

This excitement created a challenging environment for disciplined investors. The narrative was compelling, but the prices were often detached from underlying business fundamentals, making it crucial to separate the story from the substance.

A Value Investing approach doesn't dismiss new technology; it simply insists on buying it at a sensible price. When faced with a phenomenon like ChatGPT, a value investor focuses on business reality rather than speculative excitement.

The core task is to look beyond the dazzling demonstrations and ask tough questions. How will this technology generate sustainable, long-term profits? Which companies have a genuine, defensible business model, and which are just riding the wave? A value investor avoids buying into a story, no matter how exciting. Instead, they analyze balance sheets, income statements, and cash flows to determine a company's intrinsic value, seeking a margin of safety before committing capital.

During the 19th-century gold rushes, the most consistent fortunes were often made not by prospectors digging for gold, but by the merchants selling them picks, shovels, and blue jeans. This “picks and shovels” strategy is highly relevant to the AI boom. Instead of betting on which single AI application will “win,” a value investor might look at the companies providing the essential infrastructure for the entire industry. These companies often have a stronger Economic Moat, or durable competitive advantage.

• Semiconductors: Companies like Nvidia that design the specialized chips (GPUs) are the modern-day shovel makers.
• Cloud Computing: Giants like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform provide the vast computing power needed to train and deploy AI models.

• Valuation Risk: Many AI-linked stocks trade at extremely high valuation multiples, such as the P/E Ratio or P/S Ratio. This high price implies decades of perfect execution and growth, leaving no room for error and increasing the risk of significant loss if sentiment changes.
• Fierce Competition: The AI space is hyper-competitive. Today's technological leader could easily be leapfrogged by a competitor's breakthrough tomorrow. It is notoriously difficult to predict the ultimate long-term winners in a rapidly evolving technological arms race.
• Uncertain Monetization: Having an amazing technology is one thing; turning it into a profitable business is another. Many companies are still figuring out how to convert AI capabilities into reliable revenue streams.
• Regulatory Scrutiny: Governments around the world are grappling with the ethical and societal implications of AI, and future regulations could significantly impact the industry's growth and profitability.

Beyond being an investment theme, tools like ChatGPT can be a powerful assistant for your own investment research—if used correctly and with a healthy dose of skepticism.

Think of ChatGPT as a tireless, knowledgeable intern who is sometimes prone to making things up. It can accelerate your research, but it cannot replace your judgment. What it can do well:

• Summarize Documents: It can quickly summarize dense financial reports like a 10-K or 10-Q, helping you grasp the key takeaways before diving into the details. For example, you could ask, “Summarize the 'Risk Factors' section of company X's latest 10-K.”
• Explain Concepts: If you encounter a confusing term like “goodwill amortization,” you can ask for a simple explanation.
• Brainstorm and Screen: It can help you generate ideas, such as “List publicly traded companies in the medical device industry with a market cap below $5 billion.”

What it should never be used for:

• Financial Advice: It is not a licensed financial advisor and is explicitly programmed not to provide investment recommendations.
• Real-time Data: Its knowledge is based on its training data, which has a cutoff date. It does not have access to live stock prices, news, or financial data.
• Quantitative Analysis: Never trust it for precise calculations. It can “hallucinate” and confidently present incorrect numbers. It is not a calculator or a spreadsheet.
• Stock Price Prediction: It cannot predict the future. Any attempt to ask it where a stock will go is a pointless exercise.

The most important takeaway is that AI is a tool, not an oracle. Every piece of information, every summary, and every number generated by a tool like ChatGPT must be verified against primary sources like official company filings, reputable financial news outlets, and your own analysis. Your critical thinking remains your most valuable asset.