Why AI Stocks See Powerful Results: The Efficiency Advantage

For the past several months, talk of an ‘AI bubble’ has been a media mainstay. I’m sure you’ve seen the headlines – ‘Will AI Be a Bust? A Wall Street Skeptic Rings the Alarm,’ ‘The Thrill of AI Is Fading,’ ‘Wall Street Sounds AI Bubble Alarm.’

But the truth is, the AI Boom remains alive and well. Indeed, the Global X Artificial Intelligence ETF (AIQ) is up about 20% since early August. And AI stocks are now broadly up about 40% over the past year and 90% since late 2022. 

AI stocks have been, still are, and will likely remain on fire. 

But… even amidst all the AI fervor on Wall Street… friends and family are constantly asking:

What even is AI? And why is it such a big deal? 

Well, by definition, AI refers to the machines or computer systems that can perform tasks that typically require human intelligence. These systems have a wide range of capabilities, such as learning from experience (machine learning), understanding and processing language (natural language processing), recognizing patterns (vision and speech recognition), problem-solving and, in some cases, decision-making. 

In short, artificial intelligence is a bunch of computer programs doing things by themselves. 

But… why does it matter? That is the far more interesting question. 

And, for that, there is a far more interesting answer: 

Because it can allow us to do much more with much less. 

In our view, AI allows us to become hyper-efficient. We can use such programs to autonomously complete tasks that we previously had to handle ourselves. That means we can use AI to achieve just as much output without as much input. 

This is more than some futuristic concept. 

Companies across the world are already using AI to do more with less – and in many cases, it is translating to increased profits and soaring stock prices. 

Driving Stock Gains With AI

Consider the tiny fintech firm, Dave (DAVE). The company operates a mobile fintech app geared at providing a range of financial services for those underserved by the traditional banking industry. And it’s recently tapped into the power of AI to help it do just that. 

Last year, the company launched its proprietary Cash AI engine – a cash-flow-based underwriting system that leverages artificial intelligence to analyze incomes, spending habits, and job prospects to determine loan readiness. 

Forget traditional credit scores, which research suggests disproportionately punish lower-income consumers. Dave developed a new system, using AI, to help folks land loans. And originations through the Cash AI engine have been surging. 

Moreover, in 2023, Dave launched an AI chatbot – DaveGPT – to automate customer service requests. This has allowed Dave to improve customer satisfaction by handling more customer service requests without needing additional payroll to handle those requests. 

The proof of these new AI products is in the numbers – and the stock price. 

Over the past two years, Dave has been able to cut operating expenses by 25%, yet still grow revenues by about 70%.

And in response, DAVE stock has been soaring. It has increased more than 1,000% off its summer 2023 lows. 

That is the power of AI at work: allowing a small company to do more with less, thereby driving up revenues without increasing expenses – and pushing the stock price way higher in turn.