AI and Firm Values: How the Release of ChatGPT Affected Expectations Toward AI-exposed Firms : A Difference-in-Differences Approach

Abstract

The release of ChatGPT constituted a major technology shock to AI, offering new information about AI advancement and its future potential. This paper studies the impact of the release on analyst stock recommendations and earnings forecasts for AIexposed firms, which are argued to have a competitive advantage in capitalizing on such advancements. We measure AI-exposure with a combination of natural language processing techniques applied to earnings call transcripts. Using a difference-in-differences model, we find evidence of recommendations for AI-exposed firms moving towards "sell". Findings also indicate a positive effect on earnings expectations likely driven by reduced cost forecasts. However, recommendations indicate that the earnings effect is not strong enough to justify an upgrade. Thus, we attribute "sell" recommendations to stock prices moving beyond what analysts consider fundamental values.