Generative AI and firm valuation


Generative AI models can process complex inputs and generate human-like outputs, making them more versatile and scaleable. Using a unique firm-level measure of exposure to generative AI, this study explores the effect of the public release of ChatGPT on equity returns at the firm level. ChatGPT had a sizeable positive effect on the value of firms whose labour forces are more exposed to generative AI. Occupations involving non-routine cognitive analytical tasks or routine cognitive tasks exhibit the highest exposure to generative AI, while manual physical tasks are relatively unaffected.

Recent advancements in generative artificial intelligence (AI) have sparked significant interest due to their potential to revolutionise various industries. Compared to previous AI models, generative AI models possess the ability to process complex inputs and generate human-like outputs, making them more versatile and scalable. This has led to widespread anticipation of their adoption in the corporate sector, with potential implications for firm values.

A key question is what effect these technologies will have on corporate valuations as a result of the impact of generative AI on firms’ labour inputs. The answer can help company managers better prepare for the new technology’s impact on their firms and guide investors to allocate resources more efficiently across firms.

A major obstacle to answering this question is that measuring firms’ exposure to a new technology in real-time can be challenging. In particular, as the new technology unfolds, one would need a tremendous amount of knowledge to assess what types of labour and firms are most exposed to a new technology. Indeed, researchers typically rely on crowdsourcing such knowledge and study the impact of technologies in retrospect, when enough knowledge has accumulated.