AI, or artificial intelligence, is an umbrella term used for a branch of computer science concerned with developing machines capable of performing tasks that would normally require human intelligence, such as image recognition, language comprehension, decision making, and problem solving. The goal is to create algorithms / programs that can learn from data and experience and then apply that knowledge to make intelligent decisions and take action in the real world.
In the investment world, AI can serve many possible functions, some of the most common listed below. AI's usefulness is only constrained to the creativity of the creator.
An AI algorithm, for example, could be trained to analyze market data (time series or other) and identify correlations between different stocks or between stocks and economic indicators such as interest rates or GDP growth. The algorithm could then make predictions about which stocks are likely to perform well based on this analysis.
Another application is the use of natural language processing (NLP) algorithms to analyze news articles and social media posts for sentiment and other signals that may impact financial markets. An NLP algorithm, for example, might search Twitter for tweets about a specific stock or company and use the sentiment expressed in those tweets to inform investment decisions.
Artificial intelligence (AI) can also be used to automate trading decisions based on predefined rules / algorithms in a quantitative strategy.