Fake AI Image Causes A Major Decline In US Stock Market

At a start of a week in May, the US stock market took a sudden turn. A picture of an explosion at the Pentagon close to Washington DC was circulating on social media and other popular websites.

According to experts, it was a fake image and declared that it is cobbled together with artificial intelligence. But it left one of the biggest fear behind the government’s zeal to regulate AI. As soon as the image was revealed, investors seemed worried and stocks tend to perform poorly in the early stages of international conflict.

But, within a couple of hours, everything had returned to normal, as the image was declared fake by the government. According to the news, it might have been the first time an artificial intelligence-generated image moved markets. The image forts appeared on Facebook and claimed that an explosion had been reported close to Pentagon. Later, the news spread so fast everywhere.

The image was quickly disproved by online investors as they started panic and raising questions about AI and it’s existence for market stability with fake images.

The Risk Associated With AI Fakes In Algorithmic Trading

AI is indeed an amazing technology but still people are concerned about the dangers associated with the technology. Gary Gensler, the head of the US Securities and Exchange Commission (SEC) stated that “technology could pose a systemic risk capable of triggering the next financial crisis”.

On the other hand, regulators and investors in the United States are currently working on regulation for the technology. However, when it comes to fake images, there is an easy way to spot a fake. The more realistic images AI would release, it will create more threats to financial markets.

According to Adam Kobeissi, editor in chief of industry publications stated that “A lot of these moves are happening because of high-frequency trading, algorithmic trading, which is basically taking headlines, synthesizing them, and then breaking them down into a trade on millisecond basis”.

Algorithmic trading is a kind of trading done by a computer using an algorithm that has been trained and given for action accordingly.

” It’s you are pulling a trigger every time a headline comes out”

Internet Intensifies Behaviours That Already Existed

But Nir Vulkan, a professor of business economics at the University of Oxford states, this kind of trading behavior is nothing new. Markets time to time face such issues and knows how to deal with the situation.

“With the internet and everything being connected, it happens faster and may be stronger, but it does then correct”.

Algorithms Could be Less Vulnerable Than Humans

The algorithms that are used by most famous funds are much stronger and such fake images cannot create trouble.

According to him, “so you could say that’s fantastic, these algorithms are better at responding to short-term fake events than people”.

But, these fake images would cause trouble if they will happen again.

Vulkan also said, “I don’t know if that’s an algorithmic question, that’s more a question about robustness to fake news in general”.

AI Tech Stock Pile: Another Risk Factor

The greater risk for the markets might not be traders, humans, or another factor. Though, many investors have been drawn to tech stocks in recent months due to the growing interest in AI.

Investment advisory firm Evercore ISI’s Julian Emanuel said in May that, “the revolution is likely quite real, quite significant, but these things unfold in waves, and you get a little too much enthusiasm, and the stocks sell-off”.

In April, JP Morgan strategists, stated that the current degree of crowding implies, the risk of recession is far from priced in”.

Both experts are concerned that the stocks of tech giants like Microsoft, Alphabet, Amazon, Apple, Meta, and Nvidia are overrepresented in the index gains.

Currently, these six companies account for about half of the value of the tech-heavy NASDAQ index. A market rally could end if sentiment shifts away from AI and it happens when central banks started raising interest rates.

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