FINC6001 Assignment: Evaluating AI in Financial Decision-Making

Semester 1, 2024

Group Project

Weighting: 100 points (worth 30% of the total unit)

Assessment Due Date: 05 May 2024 at 23.59pm

I. NTRODUCTION AND GUIDELINES

The FINC6001 assignment is a group project centered on evaluating the impact of AI on financial decision-making, using Nvidia Corporation as a case study. Teams will compare AI-generated financial advice with traditional analysis methods, examining financial ratios, market trends, and ESG factors. The task involves generating AI recommendations via the "Cogniti" tool, critically analyzing their validity, and synthesizing findings into a strategic financial recommendation for Nvidia. The deliverable is a comprehensive report, blending numerical analysis and critical insights.

· The written report should be no more than 3,000 words with normal-sized margins, 1.5 line spacing and size 12 Arial Font. Please number the pages of your report.

· All assignments must include a list of references in academic form using the APA 7th method.

· The report must be submitted as a .docx document. The Excel spreadsheet must be submitted as a .xlsx workbook. The Excel spreadsheet should contain all the calculations used to generate the values in your report. The Excel spreadsheet will not be explicitly graded but must be submitted at the same time as the report to verify your calculations.

· The group representative must submit two files electronically. Failure to submit both files will result in penalties - late penalties will apply until both files are submitted. They also need to ensure that all files submitted can be opened and read in Canvas.

II. REPORT STRUCTURE

Your report must contain the following information:

1. Executive Summary

2. Company overview

3. Traditional Financial Analysis

4. Critical Judgment and Further Analysis 

5. Alternative AI Model Outputs 

6. Reflection

7. Conclusion and Recommendation

8. References

 Note: Remember that all calculations conducted in requirements should be provided in excel form. and submitted. 

III. BACKGROUND AND REQUIREMENTS

In recent years, Artificial Intelligence (AI) has increasingly become a cornerstone in financial decision-making, offering insights that are reshaping the landscape of investment, risk assessment, and market predictions. This assignment aims to bridge the gap between AI-generated financial recommendations and traditional financial analysis methodologies. You will explore the role of AI in financial decision-making by comparing AI-generated recommendations with traditional analysis on a real-world scenario involving Nvidia Corporation (Nasdaq: NVDA).

Your task is to evaluate the accuracy, reliability, and applicability of AI-generated financial advice using comprehensive traditional financial analysis techniques. This will involve examining financial data, market conditions, industry trends, and other relevant information to make informed financial decisions.

You are required to complete the followings tasks:

1. Company overview

Provide a succinct overview of Nvidia, covering its evolution, core business areas, and its significance in the AI and semiconductor industries.

2. Traditional Financial Analysis

Conduct a comprehensive traditional financial analysis on Nvidia, focusing on financial ratios, value of equity based on DCF or APV, risk assessment, and ESG factors. This analysis should deeply explore Nvidia's financial health and its investment potential, considering the current market and industry trends.

3. Critical Judgment and Further Analysis

Evaluate the AI-generated financial recommendations provided below produced by Cogniti against your traditional financial analysis. Discuss areas of agreement or discrepancy, exploring potential reasons for differences. Consider the impact of scenarios where external factors like market conditions, interest rate, and ESG factors changes and evolves. Discuss the robustness of the recommendations under different scenarios.

Prompt used:

For Nvidia, generate financial recommendations which must include:

• A financial strategy or decision (e.g., investment, divestment, expansion)

• Supporting rationale based on market trends, financial data, and predictive analytics

Financial Recommendation for Nvidia generated by Cogniti

Financial Strategy: Investment in AI and Diversification of Product Portfolio

Supporting Rationale:

Market Trends:

1.Growth in AI and Deep Learning: The demand for artificial intelligence (AI) and machine learning (ML) is growing at an unprecedented rate. Nvidia's GPUs are widely regarded as the gold standard for deep learning purposes.

2.Expansion of Gaming Market: Nvidia's core market, the gaming industry, continues to expand with the rise of eSports and mobile gaming.

3.Rise of Edge Computing: There is an increased need for real-time processing and AI on local devices (edge computing), which can drive demand for Nvidia's technology.

4.Automotive Industry's Shift to Autonomy: The automotive industry is increasingly moving towards autonomous vehicles, which require advanced GPUs for processing.

Financial Data:

1.Revenue Streams: Nvidia has seen consistent revenue growth in its data center business, indicating a strong market position in cloud computing and AI sectors.

2.Profit Margins: Nvidia maintains healthy profit margins, especially in their GPU segment, which provides financial flexibility for further investment.

3.R&D Expenditure: Nvidia's substantial investment in research and development is not only a sign of commitment to innovation but also positions the company to capitalize on new market opportunities.

Predictive Analytics:

1.Forecasting AI Adoption: Predictive models show a steady increase in AI adoption across various industries, suggesting that Nvidia's focus on AI chips will align with market demand.

2.Gaming Industry Projections: Projections indicate continued growth in the gaming market, benefiting Nvidia's core business.

3.Competitive Landscape: Predictive analytics suggest that Nvidia's main competitors are also ramping up their AI capabilities, emphasizing the need for Nvidia to maintain or increase its pace of innovation to stay ahead.

Conclusion:

Investing in AI technology and diversifying the product portfolio to capitalize on emerging technology trends is recommended for Nvidia. This includes reinforcing their position in the gaming market, expanding their data centre capabilities, and exploring new markets such as autonomous vehicles and edge computing. Maintaining leadership in AI will likely involve strategic partnerships, continued R&D investment, and possibly selective acquisitions to enhance technological capabilities and market reach.

4. Alternative AI Model Outputs

Use the “Cogniti” tool available in the Canvas module to generate a new set of financial or non-financial recommendations for Nvidia. Document each step, from the specific prompts used to the rationale behind the AI’s recommendations.

Generation of Recommendations:

· Financial Strategy or Non-Financial Decision: Request a financial strategy or non-financial decision relevant to Nvidia from Cogniti.

· Supporting Rationale: Ensure the recommendation includes a request for rationale such as market trends, Nvidia's financial data, and predictive analytics and other potential rationales.

· Documentation: Record the specific prompts you make to Cogniti and the responses received.

5. Reflection

Reflect on the process of comparing AI-generated advice with traditional financial analysis. Discuss the insights gained, challenges encountered, and the potential implications of AI's role in financial decision-making.

6. Conclusion and recommendations

Conclude your analysis by synthesizing your findings into a final recommendation regarding Nvidia’s financial strategy.