Editor-DN
Artificial Intelligence (AI) platforms like ChatGPT are already as ‘smart’ (in some ways) as the most intelligent humans. You’d think that would make him very good at picking stocks. FTSE 100.
After asking ChatGPT to name the best FTSE 100 stocks to invest in, I was delighted to find that he gave me some sensible financial advice. Offered.
AI Platform said: “Please note that past performance does not guarantee future results. It is advisable to consult a financial advisor to ensure that this investment is suitable for your personal financial situation and goals. It added that the FTSE 100 provides exposure to a number of UK companies.
Although I only asked for one stock, the AI platform gave me five companies. It includes Rolls Royce (LSE:RR), Nat West, Barclays, Antofagasta.and Darktress. This is not a good start as Darktress is no longer listed on the UK exchange having been acquired by Thoma Bravo in October 2024. This error makes me question the validity of ChatGPT. Darktrace isn’t even a bad choice, it’s just an impossible choice!
However, I went further and called it the single best stock on the index. He responded with a Rolls-Royce, saying:gave The company’s strong performance, recovery in the aviation sector and increased military spending have seen the share price rise more than 95% in 2024. Its position as a leader in aerospace and defense, combined with ongoing trends in market recovery, offers a standout. Growth potential“
It highlighted a strong recovery in the aviation sector, cost-cutting measures as well as some talk of debt burden. Indeed, he noted ongoing efforts to reduce the burden and suggested that debt is one of the biggest threats to business.
Personally, I still like Rolls-Royce as an investment opportunity, but I’m not convinced by the rationale provided by ChatGPT. I would argue that it is the company’s valuation metrics—driven by trends in aviation, defense, and power systems—that make this company an interesting investment opportunity.
The stock is currently trading at 33 times forward earnings. But given the very impressive growth forecasts, the company’s price-to-earnings-growth (PEG) ratio is just 1.1. Given the barriers to entry in sectors such as aviation engines and defense, along with strong profit margins, I would suggest that this PEG ratio is very attractive. One of his few colleagues, GE Aerospacetrades with a PEG of 1.3.
I also disagree with ChatGPT’s concerns about Rolls-Royce’s debt. Three years ago, debt was a problem. But now the net debt is around £800m. This is significant for a company with a market cap of £50bn.
