Artificial Intelligence (AI) is currently at the forefront of everyone’s minds. The mention of AI during earnings calls has surged significantly, as highlighted in Accenture’s recent Technology Vision 2024 report. In the first quarter of 2022, there were approximately 500 references to AI. Fast forward to the third quarter of 2023, and the number had escalated to over 30,000. However, AI is not just impacting earnings calls in one way; it is revolutionizing them in multiple aspects.
The era of solely relying on traditional financial metrics is fading away as AI revolutionizes how analysts evaluate and interpret the financial status of companies. At the core of this revolution lies machine learning (ML), a potent tool that facilitates the analysis of extensive datasets to identify significant patterns. ML algorithms swiftly and accurately scrutinize historical financial data, market trends, and economic indicators, unveiling insights that conventional analytics may overlook. This process offers a more nuanced comprehension of an industry or a company’s performance. Predictive analytics (PA), a segment of machine learning, utilizes historical data to predict future financial trends, aiding in making informed assessments regarding revenue forecasts, market share, and risks.
Another pivotal tool is natural language processing (NLP), which is reshaping how analysts seek clues about market trends by sifting through vast amounts of textual data such as reports, filings, news articles, audio and video transcripts, and social media posts. Additionally, sentiment analysis (SA) plays a crucial role in determining market participants’ mood by detecting positive or negative patterns in commentary, potentially influencing equity valuation.
The Rapid Pace of Market Analysis Poses New Risks
By monitoring news, financial forums, and social media, analysts gain insights into perceptions and timely sentiments regarding a company.
This development carries significant implications in the age of algorithmic trading (AT), a well-established strategy among large institutions that has now been enhanced by AI and ML. These technologies enable the analysis of statistics and the execution of trades at speeds unattainable by humans. These algorithms respond to real-time fluctuations, utilizing AI to optimize trading strategies and maximize returns. This underscores the critical role of effective communication and the responsibility of leaders in shaping commentary and public opinion in a volatile financial landscape.
Do CEOs Speak the Language of AI—or is There a Communication Gap?
AI algorithms delve deep into every financial and market intricacy, necessitating companies to present clear, comprehensive, and unambiguous reports. As NLP and SA decipher market sentiments, C-suite executives must thoroughly understand the nuances of language in all public communications and filings. These communications should align with market expectations—or provide clear explanations for any discrepancies.
For instance, during a recent CNBC interview, Alex Chriss, the new CEO of PayPal, vowed to “shock the world” with innovations. This bold statement by Chriss led to investor confusion as it contradicted the company’s reputation for slow innovation. Some analysts perceived PayPal’s announcement on January 25 as evolutionary rather than revolutionary, resulting in a downgrade.
All eyes and ears are now on PayPal’s February 7 earnings report to validate or debunk Chriss’s claims, with potential repercussions at stake. The unique aspect of this scenario lies in the immediate and intense market response triggered by these assessments.
CEOs influencing equity value through impulsive statements is not a novel occurrence. Instances such as Dennis Muilenburg, the former Boeing CEO during the 737 Max crisis in 2019, and Elon Musk’s misleading tweet in 2018 about taking Tesla private, have led to stock declines, emphasizing the market’s sensitivity to unclear management communication. With AI intensifying the consequences of language misuse, the importance of precise communication has been magnified.
Collaboration is Essential for Crafting Cohesive Communication in the Age of AI Technology
In most companies, public documents are a collaborative effort involving individuals with diverse expertise and backgrounds, resulting in a blend of writing styles.
Now more than ever, management must implement a process that ensures consistent language and key messages across all public documents. This skill, typically not inherent to lawyers or financial executives, necessitates learning new skills and enhancing collaboration with experienced communications professionals.
This meticulous coordination acts as a defense against potential contradictions and discrepancies that vigilant AI systems can quickly detect. A simple yet effective measure of document efficacy involves asking an entry-level employee to read the document and share the two key takeaways. If their feedback does not align with the intended messages, a revision is imperative for success.
Deepfakes, Misinformation, and High-Tech Hoaxes Pose a Threat to Disclosure
While most companies have robust cybersecurity measures in place to safeguard financial information, the tools used to protect data can be exploited to exploit system vulnerabilities.
A looming threat for many companies is the emergence of deepfakes, which pose significant risks to corporate earnings by potentially manipulating disclosures. Deepfakes, generated by AI, manipulate audio, video, or images. These deceptive tactics, such as face-swapping and voice cloning, can create realistic yet false content.
To counter these threats effectively, companies must go beyond understanding these deceitful tactics and implement swift, well-prepared communication strategies to respond promptly. Moreover, engaging with stakeholders in an ongoing effort to shape the narrative around performance is crucial in preventing misinterpretations stemming from AI-generated analyses.
In this era dominated by AI and ever-evolving market dynamics, companies must embrace adaptability as a core strategy. Proactive measures will not only fortify the company against heightened scrutiny but also position it to thrive and remain resilient amidst global market volatility.
Richard Torrenzano, the CEO of The Torrenzano Group, specializes in helping organizations manage their public perception. With nearly a decade of experience at the New York Stock Exchange, he is a renowned expert on AI, cyber-attacks, brands, crisis management, media, financial markets, and reputation.
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