(Bloomberg) -- As investors increasingly turn to artificial intelligence for help with everything from stock picking to risk management, JPMorgan Chase & Co. has been testing whether a model can do something more ambitious: allocate money itself.
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The early results are encouraging. Researchers at the bank built an array of AI-powered investing agents that shift between stocks and bonds depending on changing market conditions. In backtests spanning the past two decades, the best-performing system topped a traditional 60/40 portfolio — 60% in stocks and 40% in bonds — by 0.7 percentage point a year with lower volatility, while also beating JPMorgan's own rules-based market regime model, according to strategists led by Thomas Salopek.
The results come with an important caveat. They are based on historical simulations rather than live investing, and JPMorgan warns against treating them as proof that AI can consistently outperform markets. Still, it's a sign of things to come as the boom in automated trading shows little sign of slowing.
"The AI agent can be set up with a process to be empowered to make decisions under uncertainty, producing outperformance vs a reasonable benchmark," the strategists wrote in a note Thursday, describing the work as the firm's first attempt to build an AI system for identifying market regimes.
The experiment offers an early glimpse of Wall Street's next phase of AI adoption. Banks have spent the past two years embedding large language models into research, coding and internal investing tools. Increasingly, they are testing whether those same systems can move beyond assisting workers to making one of the industry's most consequential decisions: how to allocate capital across markets.
The findings come as a growing body of academic research raises questions about what happens if everyone turns to similar AI models to make investment decisions. While the technology may make investors faster and better informed, researchers have warned it could also produce more crowded trades, make markets easier to manipulate and amplify periods of stress if too many firms reach similar conclusions.
The JPMorgan strategists also acknowledged such risks.