ChatGPT and Other AI-Driven Innovations Lead Stock Market Gains
An analysis by JPMorgan has shown that the development of large language models such as ChatGPT has contributed to nearly half of the gains in the US stock market this year. This interest in artificial intelligence has created a market cap of $1.4 trillion and a 45% year-to-date gain.
Some of the major companies included in this analysis are Microsoft, Google parent Alphabet, Amazon.com, Meta Platforms, Nvidia, and Salesforce.com. The analysis includes a grouping called "LLM-innovation" stocks, which have outperformed the top five largest stocks such as Apple, Tesla, Berkshire Hathaway, UnitedHealth Group, and JPMorgan Chase.
The AI grouping explains 53% of the S&P 500 performance, 54% of the Nasdaq 100 performance, and 68% of growth factor gains. While this seems like good news for the stock market, the JPMorgan team led by Dubravko Lakos-Bujas sees the narrow stock leadership in an up market since the 1990s as a negative development.
The analysts explain that the AI gains, combined with a rotation into "safety," indicate that we have defensive rotation and narrowing growth leadership in an up market. They believe that this is indicative of a slowing cycle, possibly a recession.
Thus, the analysts advise investors to consider stocks 11 to 50 in the S&P 500, which have greater valuation support and are trading at notably cheaper rates than the 10 largest megacaps. They also suggest that there is room for further rotation into defensives such as healthcare, utilities, and consumer staples.
The present gains in the stock market are being led by megacap tech stocks, which has investors concerned about future returns. Although AI-driven innovations such as ChatGPT are contributing to the current gains, there is also a need for diversification in investments.
