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Can artificial intelligence make human analysts irrelevant? That’s the question on everyone’s mind as AI models completely revolutionize investment research. Byron Wien, a market strategist who defined the 1990s, believes the best research comes from bold, non-consensus ideas that prove correct. Now the pressure is on AI to meet this standard and potentially sideline analysts who have dominated the field for decades. For years, analysts have dissected financial statements and scoured headlines, all to help investors make better decisions. AI has stepped into this space with tools that simplify, automate, and sometimes outperform traditional methods. Large language models (LLMs) have become particularly effective at analyzing financial data, doing in minutes what might take a team of analysts days. Predicting earnings, for instance, plays right into AI’s strengths. Profit patterns tend to follow logical trends—good years lead to more good years; bad years lead to more bad ones. AI thrives in these predictable spaces, outperforming human analysts who sometimes let noise or bias cloud their judgment. LLMs rewriting the investment analysis playbook The University of Chicago’s work with LLMs has turned heads. Researchers used AI to predict earnings variance and found that these models beat human analysts’ median estimates. The secret? LLMs excel at understanding the story behind earnings reports, something traditional algorithms never managed to do.  These models mimic the logical steps of senior analysts, like disciplined juniors on a financial team. AI models also sidestep one of the biggest human pitfalls: overconfidence. Analysts are notorious for adjusting their projections to fit what they think investors want to hear. AI doesn’t play that game. By tweaking an AI model’s “temperature” settings—a fancy term for randomness—you can calculate risk and return bands with cold, hard statistics. You can even get a confidence estimate for its predictions. Humans, by comparison, tend to…

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Filed under: News - @ January 4, 2025 3:13 pm