Here’s a story that may have slipped by all but the most hardcore investors: Perplexity can now access EDGAR.
If that sounds like a series of random words strung together, allow us to explain.
Generative AI chatbot Perplexity is now incorporating financial documents housed in the SEC’s EDGAR database into the mega-swath of data it uses to produce information, meaning users can now use the chatbot to elicit insight into their investments.
“These documents contain the deeper story behind public companies—their actual financials, their strategic plans, their material risks,” the company wrote in a blog post. “Ask about a company's recent earnings, then immediately explore how those results compare to industry peers or what analysts are saying about the sector's outlook.”
Perplexity is by no means the only company that’s mixing AI with financial markets. Complex trading algorithms used to be relegated to sophisticated quant firms and hedge funds, which have been using different forms of machine learning to analyze huge swaths of data and make trading decisions for decades.
Now, with the advent of generative AI, retail traders have access to the kind of technology that can guide traders toward undervalued and opportune corners of the market.
For example, in March, Robinhood announced its own AI trading platform, Cortex, that can help retail traders navigate complex trading strategies. The tool will be available for investors later this year. Interactive Brokers, meanwhile, unveiled its own version of an AI analyst whispering stock picks in your ear: Reflexivity.
Making sense of market moves
Stay up to date on the latest market news with daily analysis of the investing landscape, served up Brew-style.
As retail traders increasingly utilize AI, they’re broadening their portfolio horizons, too, according to Bloomberg. Instead of focusing heavily on high-flying tech picks, machine learning is helping them look beyond the headlines and search the hidden corners of the market for their stock picks. For example, last year the Magnificent Seven accounted for 10% of the retail crowd’s collective portfolio, according to JPMorgan. Now, it’s just 1.1%.
The flip side
If AI is scanning financial information to give investors insight, it only makes sense that businesses would cater to AI. Companies have started adjusting the language in their quarterly reports to convey a more cheery tone because they know large language models can pick up on the optimism. The problem is obvious: If AI thinks a company is doing well based on false confidence, it can mislead people about an investment’s potential problems.
There’s also another issue with basing your financial decisions on what a chatbot tells you to do: AI makes mistakes—and not an insignificant number of them. While these new tools might be a great way for retail traders to get access to some of the strategies buttoned Street traders have been making millions from, they’re by no means perfect.
So, be aware that if you're using AI to help you pick stocks, you’re the guinea pig, not the Jane Street analyst.—LB