Google, which makes almost all of its money on ads and internet user data, is undertaking herculean efforts to get a grip on artificial intelligence (AI). It’s trying to develop software that allows machines to think and learn like humans. It’s spending enormous resources on it. This includes the $525 million acquisition in 2014 of DeepMind, which is said to have lost an additional $162 million in 2016. Google is trying to load smartphones with AI and come up with AI smart speakers and other gadgets, and ultimately AI systems that control self-driving cars.
Facebook, which also makes most of its money on ads and user data, is on a similar trajectory, but spreading into other directions, including a “creepy” run-in with two of its bots that were supposed to negotiate with each other but ended up drifting off human language and invented their own language that humans couldn’t understand.
And here comes an AI bot developed by stock analysts at Wells Fargo Securities who have an “outperform” rating on Google’s parent Alphabet and on Facebook. They worked with a data scientist at Amazon’s Alexa project to create the AI bot. And after six months of work, the AI bot was allowed to do its job. According to their note to clients on Friday, reported by Bloomberg, the AI bot promptly slapped a “sell” rating on Google and Facebook.
Human analysts on Wall Street are famous for their incessantly optimistic ratings and outlooks. They generally only put a “sell” on a stock after it has already plunged. They’re part of Wall Street’s human hype machine. Their job is to help inflate stock prices and make CEOs feel good so that they will do business with the analysts’ firms and send fees their way. But Wells Fargo’s AI bot hasn’t gotten the memo.
Last month, a group led by Ken Sena, head of Global Internet Analyst at Wells Fargo Securities, introduced this “artificially intelligent equity research analyst” or AIERA. Its “primary purpose is to track stocks and formulate a daily, weekly, and overall view on whether the stocks tracked will go up or down,” Sena, said at the time.
So “she” did Big Data analysis of Alphabet, Facebook, and some other stocks, and after seeing what’s there, averted her eyes in disgust and slapped a “sell” recommendation on both stocks and a “hold” recommendation on 11 other cherished stocks.
But the bot wasn’t ready yet to replace the human analysts – and the “sell” rating shows why. Until this bot learns to produce perma-hype, as human analysts know how to pump out so efficiently, she would have to be kept on a leash, so to speak.
“While AIERA does exceed us in capturing and analyzing publicly available data, we like to think we still have an ability to engage in frameworks/themes,” the analysts wrote when they introduced the bot – perhaps already worried about the bot’s potential inability, at least up front, to produce the required hype and buy recommendations.
Or as Sena put it in the note to clients on Friday: “AIERA’s approach this week appears decidedly more conservative (than last week), as she places a ‘hold’ recommendation on 11 names and even going so far as to place Google and Facebook in the ‘sell’ category.”
This is in blatant contradiction to Wall Street’s human hype machine, which has 42 “buy” recommendations out of 47 ratings on Facebook, according to Bloomberg, and 34 “buy” recommendations out of 41 ratings on Alphabet.
AIERA’s creators tried to brush off her harsh judgement:
Of course, we would reiterate that AIERA remains in test and learn mode, and therefore has no current bearing on our long-term outlooks or ratings (including Facebook and Google, both of which we rate Outperform with $215/$1,250 price targets, respectively).
It’s hard not to admire the guts of AI. It says whatever it wants to. It’s driven by its own logic and by the data it sees. Alas, when it finds something that goes against the analysts’ wishes, they brush it aside.
A “sell” rating is theoretically put on a stock when analysts think it’s going to dive in the near future, though in reality, it is usually put on a stock belatedly, after it has already plunged. So what I really want to know is what AIERA saw when combing through Big Data that made “her” think that the shares of Facebook and Alphabet would dive in the near future? What does she know that we don’t?
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