Stock market crashes are notoriously difficult to predict. So I tried asking the latest version of ChatGPT whether I need to worry about a bubble in artificial intelligence (AI) shares.
OpenAI chief executive Sam Altman says that GPT-5 is supposed to be like talking to a PhD-level expert. But the response I got resembled something I might expect from first-year undergraduates.
What ChatGPT said
All that ChatGPT gave me is a list of potential AI risks, including weak earnings and tighter regulation. But in terms of a crash, all it said is that the threat’s “meaningful” – whatever that means.
That wasn’t much help. But it offered to help me assess the probability of different scenarios — including a mild correction, a moderate decline, and a major crash – which sounded better.
This however, turned out to be some statistics about the past frequency of each of these. And it concluded the likeliest outcome is a 10%-20% drop, because that’s happened most before.
That’s information I can get myself fairly easily. But maybe a PhD isn’t what you need for figuring out when a crash is coming and the best way to prepare.
How I’m preparing
Given this, I’m sticking to my usual approach for being ready for a stock market crash. Part of this involves having an idea of which shares I want to buy if prices go down sharply.
What I look for is a business that’s going to emerge from a downturn in a stronger position than it was in before. And that means a company with a strong competitive advantage.
When things get tough in an industry, it’s often the case that the weakest firms get hit the hardest. So stronger operators find themselves in an even better position when things recover. That means looking for businesses with big competitive advantages. And there’s one in particular from the UK that’s at the top of my list.
What to do?
Compass Group (LSE:CPG) is a FTSE 100 contract caterer. It’s not an obvious AI casualty, but if automation drives staff reduction, the firm could face lower demand from workplaces.
The company however, has an incredibly strong competitive position. It’s the biggest operator by far and its scale gives it an advantage when it comes to negotiating prices with suppliers.
What impresses me most is that the firm’s been strengthening its position in an unusual way. It’s been monetising its position by letting competitors use its platform in exchange for a fee.
This generates extra cash while disincentivising rivals from trying to build a competing operation. I think this makes it a brilliant move in terms of securing its long-term position.
Crash opportunities
ChatGPT wasn’t able to tell me much about whether the next stock market crash is imminent. That might be because figuring this out is just too hard even for PhD-level thinking.
Given this, my plan is to make sure I’m ready with a list of stocks I want to buy whenever the next big drop in share prices comes. And Compass Group’s one of these.
Right now, the stock’s about 10% above my target price. But I expect it to be more resilient than its peers in a big downturn and that makes it an ideal candidate to consider in a crash.
