A growing number of companies are today engaging in AI-washing. This is the practice of claiming that their business employs AI or artificial intelligence to increase sales and profits. In actual fact the companies are doing nothing of the kind but are really misleading investors. "Don't judge a company simply on its AI claims," warns financial analyst Chris Sugira.
"Beware of companies pretending to work with AI" warns financial analyst Chris Sugira
Colin Clapson
Published:
AI or artificial intelligence is everywhere. Chris Sugira defines AI as follows: "It is a smart computer system that uses a lot of data to achieve new or better results."
We interact with it more than we think. How come Netflix can suggest a movie or series that appeals to you? Or why does Spotify play a song that matches your musical taste so very well? The answer: artificial intelligence.
AI, or artificial intelligence, has gained in popularity since more and more people discovered the intelligent chatbot ChatGPT. It’s easy to use and accessible to all. We are now at a point where many people use AI in their jobs on a daily basis.
Surfing the AI wave
Technology is ubiquitous and companies have obviously understood this. A lot of manufacturers are betting heavily on it. Unfortunately, a lot of companies also claim they are making intensive use of artificial intelligence, when in reality this is hardly the case, at all. We call these false claims "AI-washing". These are companies that want to generate interest in their activities by surfing the AI wave.
A company that uses a chatbot for its customer services is applying artificial intelligence. But that does not mean that that company can then immediately position itself on the stock exchange as an AI company. Companies that do so are engaging in AI-washing.
"Many companies believe they have seen the light and suddenly apply AI in a bid to generate more profits, but they forget that it is not a 1-to-1 relationship," explains financial expert Chris Sugira.
"Technology companies like Microsoft or NVIDIA, which make computer chips, are not involved in AI-washing. Microsoft is now also rolling out an AI help system for its office suite, generating revenue from AI activities as well," Sugira clarifies. "So you see it is important to know whether the company you want to invest in is involved in AI-washing or not. Because otherwise you are taking an unnecessary risk on the stock market.
What’s the smart way to invest?
The most important tip Sugira wants to pass on is: "Do your homework. Make sure you are well informed! Go to your bank and ask for advice and information there" says Sugira, who works as a financial analyst for high-street bank Belfius.
Investors can put their money in companies by buying individual shares or invest in a fund or an ETF, an Exchange Traded Fund.
A fund is a collection of stocks and/or bonds, for example. An ETF is also a fund, but follows a certain market index, e.g. the Bel-20, the Belgian blue chip index of top Belgian companies.
"An ETF can be compared to the supermarket home brand of a regular fund at the bank. Think of brands like Nutella or Kwatta as the bank funds and the supermarket’s own brand of chocolate spread as the ETF."
Because a fund or an ETF is a collection of different stocks and/or bonds, you spread the stock market risk. "This is also the big immediate advantage," Sugira believes. "You put your eggs in different baskets and that's a good idea."
5 tips for smart investing
Invest only the money you can spare.
Don't take unnecessary risks.
Examine the objective of the company you want to invest in. What do they want to achieve?
In the case of ETFs, it's best to check if they are domiciled in Ireland, because then you will pay less tax. Also check that the ETF is large enough and that the costs are not too high.
If you are buying individual shares, it is best to do your homework by getting well-informed. It is also important not to get caught out by hypes and trends.