When AI Makes Sharper Stock Predictions

A year ago, Mr. Andrew Lo asked ChatGPT for its opinion on Moderna, a biotech stock that soared during the pandemic era. The advice: sell. He didn't. The stock plunged.

- MR ANDREW LO, finance professor at the Massachusetts Institute of Technology and leading AI expert, on future AI systems.

Now Mr. Lo, a finance professor at the Massachusetts Institute of Technology and leading artificial intelligence (AI) expert, believes the same kind of technology that nailed the stock call could soon do far more. Not just dispense advice, but manage money, balance risk, tailor strategies—and meet one of finance's highest duties: acting in a client's best interest. Within five years, he predicts, large language models (LLMs) will have the technical capability to make real investment decisions on behalf of clients.

Mr. Lo, 65, has long bridged the worlds of finance and technology. He cofounded QLS Advisors, a firm that applies machine learning to healthcare and asset management, and helped pioneer quantitative investing when it was still viewed as fringe. He believes that generative AI, despite its flaws, is fast approaching the capacity to parse complex market dynamics, weigh long-term risks, and earn the kind of trust typically reserved for human advisers.

"This could be in the form of the so-called agent AI where we have agents that are working on our behalf and making decisions on our behalf in an automated fashion," Mr. Lo said. "I believe that within the next five years, we're going to see a revolution in how humans interact with AI."