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Sep 12, 2023

Spike in CFOs viewing US equity market as overvalued

Survey finds two fifths of finance chiefs experimenting with generative AI

The number of CFOs who view the US equity market as overvalued has jumped over the last three months, according to a survey by Deloitte.

The research, which polled 116 finance chiefs based in the US, Canada and Mexico, finds 56 percent say US equities are overpriced, a rise from 39 percent in the previous quarter.

Meanwhile, the proportion of CFOs who believe the US market is undervalued has dropped from 21 percent to just 9 percent. The remaining 35 percent of respondents have a neutral opinion.

The results coincide with a rise in the value of the S&P 500, which recorded its highest close of the year at the end of July amid a backdrop of falling inflation and hopes over productivity gains from artificial intelligence (AI) technology.

While macroeconomic conditions have improved somewhat during 2023, with inflation falling and central banks suggesting that rate rises may soon end, IROs remain cautious about a significant pull back in equity markets and how that could impact their engagement strategies.

Deloitte notes, however, that CFOs are not nearly as concerned about stretched valuations as they have been in the recent past. For example, between the third quarter of 2020 and the fourth quarter of 2021, more than 80 percent of respondents to the survey thought US equities were too highly priced.

CFOs continue to view both debt and equity financing options as unappealing at the current time, notes the Deloitte research. Just 16 percent of respondents say debt financing is attractive, the same result as three months ago. Almost three in 10 (29 percent) say equity financing is attractive, a slight increase from 24 percent in the second quarter.

Generative AI

The survey also has an extended section on how CFOs view generative AI tools, such as ChatGPT and Google’s Bard.

The largest proportion of CFOs (42 percent) say they are currently experimenting with generative AI, while 24 percent are talking and reading about it and 17 percent say it is too early to make a decision. Just 15 percent say they have taken the step to incorporate generative AI into their strategy.

When asked what they see as the most promising use-cases of generative AI for the finance function, CFOs cite ‘planning, forecasting & analysis’ as the top option.

The biggest concern about generative AI is viewed as its potential impact on risk and internal controls, selected by 57 percent of respondents.

IR professionals are currently making their own deliberations about the potential benefits and risks of generative AI.

The technology has proved useful for some daily IR tasks, such as note taking, text generation for social media and feedback on existing communications. But IROs have been warned about the dangers of adding any non-public information to generative AI tools.