Data-Driven Decisions: How AI Is Transforming the Stock Market

AI stocks like Kinaxis Inc (TSX:KXS) are leading the machine learning revolution.

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2023 may well go down in history as the “year of artificial intelligence (AI)” in the stock market. Although interest rates rose this year and corporate earnings barely grew, tech stocks, nevertheless, staged an impressive run, fuelled by hopes about AI and its potential to change the world.

It all got started with the public release of ChatGPT in November of 2022. ChatGPT, a large language model, was first announced on Twitter shortly after being released by OpenAI. It wowed users with its instantaneous written answers to their questions and quickly became the fastest app in history to reach 100 million users. That was followed by a wave of media publicity that led to a 40% rally in tech stocks (i.e., the NASDAQ 100) in just over half a year.

The question for investors is, “What can we do with this information?” The first-half tech rally has already taken place. As a result, tech stocks are now trading at very high multiples. As a class, they’re arguably too expensive right now. However, there are still ways for investors to profit off AI, as I will show in the ensuing paragraphs.

Better trading decisions

One way to “make money with AI stocks” is to use the companies’ products. Although these companies’ stock prices are quite inflated for the time being, they offer products that can help with your investment research. Many investors have reported good results using ChatGPT for investment research, some have said the same about Microsoft’s new Bing.

One of the best companies using AI to help investors is Charles Schwab (NYSE:SCHW). The company offers AI-managed Robo Advisor portfolios, which are marketed as “Schwab Intelligent Portfolios.” The portfolios basically just invest in your standard grab bag of U.S. and foreign index funds plus treasuries. Where AI comes into play is in things like asset allocation and rebalancing. Even once you’ve decided that you want to do the “ultra-diversified exchange-traded fund” strategy, you still need to choose the weights of the different assets and how frequently you will rebalance them back to their target weights. Schwab Intelligent Portfolios do this for investors on autopilot.

Companies using AI at their businesses

Apart from using AI products to improve your investing, you can also invest in the shares of the companies developing the technology. As mentioned previously, they’ve gotten pricey because of the “AI hype rally” that took place in the first half of the year, but some are still worth thinking about.

Consider Kinaxis (TSX:KXS), for example. It’s a Canadian company that develops supply chain management software. Its applications help businesses track inventory, customer purchasing patterns, and supplier lead times, all with the goal of managing supply chains better. With Kinaxis’s AI-equipped products, business owners can get quick updates that let them know how much inventory to have ready and when — among other things.

How is Kinaxis doing as a business? Pretty well, it would seem. In its most recent quarter, the company delivered

  • $106 million in revenue, up 31%;
  • $64 million in gross profit, up 25%;
  • $15 million in adjusted earnings before interest, taxes, depreciation, and amortization, up 47%; and
  • $13.5 million in cash from operations, up 66%.

The company saw significant growth in the quarter, consistent with its reputation as a high-growth AI name. KXS stock is expensive, with high earnings, sales, and book value multiples, but if it can keep up its growth, it may be worth it.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab, Kinaxis, and Microsoft. The Motley Fool has a disclosure policy.

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