ChatGPT hedged its bets when I asked for suggestions for FTSE 100 stocks. It went on about various strategies I might like, and offered more than a dozen possibilities. But by persisting, I nailed it down to just one top suggestion.
The way it works is not suprising. It really just scours multiple sources to pick out recommendations made by humans. And, of course, we all know that considering a wide range of insights makes us better investors. So I have to chalk one up to the makers of ChatGPT for apparently following Foolish principles.
Please, I insist…
Pushed for just one top FTSE 100 recommendation for total returns in 2026, it went for… Rolls-Royce Holdings (LSE: RR.).
The massive turnaround of the past few years headed the list of reasons. And it rightly pointed out that Rolls-Royce has transformed from a struggling business into something highly profitable and generating sacks of cash.
The business has benefited from the post-Covid recovery in civil aviation, and is thriving on the back of today’s defence spending boom. That’s all good.
A rerating, really?
Oh, and it also told me there’s a major stock rerating still happening. Is there really? How can we know it isn’t already over, and the shares are approaching a limit?
The rock-bottom valuation of a few years ago clearly did warrant a drastic revision. But at the time of writing, Rolls-Royce shares have already dipped 10% from their 52-week high.
And is it really valid to conclude that a stock already pushed up to a forecast price-to-earnings (P/E) ratio of 35 is still in an ongoing rerating?
In fact, the thing about a rerating is the closest the AI chatbot got to even hinting at valuation. And isn’t a stock’s valuation the most important consideration for any investing decision? It is in my books.
There was no hint of forecasts either. The earnings outlook does look solid. But ChatGPT mainly ignored it, and fixed on what’s already happened.
A safer option?
I was warned that Rolls-Royce shares are not a safe pick and might be volatile, and cyclical effects could hit the company. And if those things worried me, my AI guide offered AstraZeneca as a second-choice suggestion.
The AstraZeneca price has doubled over the past five years, but its P/E is way above the FTSE 100 average at 26 now. And the share price run has forced the dividend yield down to just 1.5%.
I reckon these are actually not bad suggestions. And I do think long-term investors should consider both Rolls-Royce and AstraZeneca. I see solid cases for both.
Good, in parts
But AI, at least on this take, really only focused on the headlines and on potential profits. And it doesn’t seem too interested in valuation. But then, its real aim is to win the battle to attract AI eyeballs. Cheerful optimism is more likely to succeed there.
I do use AI bots almost every day, but essentially as advanced search tools. ChatGPT summarised the market take on Rolls-Royce way faster than I could have done by searching original sources.
But for actual analysis before we risk our hard-earned cash… That still needs real humans.
