AI Chatbot Bridget to Give Stock Advice: How Will It Impact Investing?

Bridgewise, an Israeli AI startup, has received approval from the Israel Securities Authority to launch "Bridget," an AI-powered chatbot designed to provide stock-picking advice to retail investors. This development marks a significant milestone in the integration of AI technology into active investing.

Launching a Regulated AI Stock Advisor

Bridget will soon be available to offer buy and sell recommendations for various stocks, ushering in a new chapter of regulated, AI-assisted retail investing. The company’s technology integrates historical data with real-time market insights to provide comprehensive stock evaluations. The chatbot’s rollout will begin through a partnership with Israel Discount Bank, one of the country's largest financial institutions. Bridgewise plans to expand Bridget’s availability to another major Israeli bank in the coming months.

Despite its innovative nature, the chatbot's approval comes with specific restrictions: Bridget cannot offer personalized advice tailored to individual users or engage in interactions that could be interpreted as personal financial guidance.

Bridgewise’s Calculated Approach

Bridgewise has carefully navigated regulatory requirements to launch Bridget, as highlighted by CEO Gaby Diamant in a recent Bloomberg interview: "We’ve done everything in a calculated way, with the regulators involved end to end. Being the first to launch this has placed a huge burden on us."

The Debate: Active vs. Passive Investing

The introduction of AI-driven stock-picking tools like Bridget reignites the long-standing debate between active and passive investing. Active investing involves frequent trading and strategic stock selection, while passive investing, typically through index funds, aims to mirror market performance with minimal trading activity.

Active managers have historically struggled to outperform passive index funds consistently due to higher fees and the challenge of accurately predicting market movements. However, AI could potentially revolutionize active investing by offering more precise stock evaluations, as demonstrated in a University of Chicago study published earlier this year. The study found that AI models outperformed human analysts by 3% in predicting changes in company earnings (60% vs. 57%).

AI-Driven Funds: A Promising Yet Unproven Territory

For those hesitant to rely on chatbots like Bridget, AI-driven exchange-traded funds (ETFs) offer another way to leverage AI in investment strategies. Funds such as the VanEck Social Sentiment ETF (BUZZ) and WisdomTree International AI Enhanced Value Fund (AIVI) use AI to analyze market sentiment and select stocks accordingly. However, these funds have struggled to outperform traditional benchmarks like the S&P 500, which is up 20.88% year-to-date, compared to gains of 14.55% and 8.75% for BUZZ and AIVI, respectively.

High expense ratios remain a challenge for these funds, with the VanEck Social Sentiment ETF charging 75 basis points and WisdomTree International AI Enhanced Value Fund charging 58 basis points.

Implications for the Future of AI in Finance

The deployment of Bridget as a stock-picking advisor is a controversial step for AI in banking, raising questions about the potential risks and rewards of incorporating generative AI into financial decision-making. While many financial institutions have embraced AI for research and customer service, applying this technology directly to investment recommendations could have far-reaching implications.

As AI continues to evolve, its role in finance will likely expand, potentially reshaping the landscape of investment management. Whether Bridget will be a game-changer or just a novelty remains to be seen, but its launch is undoubtedly a significant development in the ongoing integration of AI into the financial sector.