Recently, online brokerage Robinhood (NASDAQ:HOOD) has been focused on introducing a wide range of new tools and features to its platform. From tokenized securities to prediction markets, Robinhood is widening its offerings to investors and working to capture more of the US investment market. Among these efforts has been a heavy swing to AI offerings, including advanced AI investment tools. Will Robinhood win AI investing, or can other online investment platforms beat Robinhood to the finish line when it comes to emerging financial technologies?
Robinhood’s Play on AI With Robinhood Cortex
One of Robinhood’s largest AI initiatives has been the introduction of Robinhood Cortex, an AI-powered research and analysis tool. Cortex is being presented as Robinhood’s answer to the advanced analysis tools that have, up until recently, been reserved for large, well-capitalized funds and wealthy individual investors.
Cortex includes several features, most prominent of which is Cortex Digests, a tool that generates AI summaries explaining the news and market dynamics around a given stock. Digests draws on current news headlines, analyst reports and other publicly available sources to give investors a general overview of why stocks are moving in a given direction and the trends driving them.
More recently, Robinhood has made it possible for investors to set up custom indicators within Cortex. In conjunction, Robinhood has also enabled Cortex to scan the market for stocks meeting specific criteria, making it easier for active investors to discover new trading opportunities that they might otherwise not encounter.
How Robinhood Can Monetize AI Trading Tools
Robinhood Cortex and other AI tools are part of Robinhood’s growing push to increase memberships in Robinhood Gold, a subscription-based service that gives users access to premium tools and features. It’s worth noting that Cortex is just one of the many premium features Robinhood has introduced to incentivize its users to join this subscription service.
Although subscription revenue still accounts for a small share of Robinhood’s total revenue, it is growing quickly. In Q3, for example, Robinhood’s revenue from sources other than transactions and interest grew by 100 percent compared to the year-ago period, driven mainly by a spike in Robinhood Gold revenue. The total number of Robinhood Gold members rose by 77 percent over the same period.
Aside from the revenue generated from Robinhood Gold subscriptions themselves, it’s also worth taking into account the long-term retention benefits associated with the subscription model. By providing a suite of premium tools like Cortex, Robinhood can encourage customers to keep using its brokerage services, thus increasing its transaction and interest revenues over time. Robinhood Gold has also helped to contribute to a sharp increase in total average revenue per user, which, as of Q3, had climbed by 82 percent to $191.
Robinhood’s Private AI Fund
Although Cortex is Robinhood’s largest foray into AI, it’s worth noting that it isn’t the only new offering centered around the technology. Recently, Robinhood also announced that it would be creating a closed-end fund to offer exposure to private AI startups to retail investors. Much as Cortex is meant to help close the technology gap between retail investors and institutional investors, the ability to invest in private businesses can expand retail access into parts of the market typically reserved for funds and accredited individual investors.
Are Other Brokerages Working Along Similar Lines?
While it’s clear that Robinhood is embracing AI tools, it’s also worth looking at how its competitors are using the technology. Fidelity, for example, has made investments in startups using AI to overhaul and enhance the robo-advisor market. Charles Schwab, meanwhile, has leaned heavily on the technology for client services and efficiency initiatives on the back end of its business.
Robinhood’s approach of putting AI investment tools directly in the hands of retail investors, however, seems to be fairly unique among large brokerages. While it’s likely that competitors will begin providing similar services eventually, Robinhood appears to be getting a jump on the market by rolling out advanced AI tools directly to retail investors.
So, Will Robinhood Win AI Investing?
At the moment, Robinhood looks like a probable winner in the field of introducing AI investing tools to retail traders. It’s worth keeping in mind, however, that such tools may not be particularly difficult for competitive brokerages to replicate. As such, an early lead in AI may or may not translate into a permanent and durable moat.
As usual when looking at Robinhood, it’s also worth taking the young demographics that make up the core of its customer base into account. With a younger, more digitally native customer base, Robinhood tends to benefit from early adoption of technologies that may not be as appealing to older investors. By getting out in front of AI investing early, Robinhood could further increase its popularity with younger investors, thus setting itself up for long-term success as those investors mature into their peak earning and investing years.
Taking the larger view, it’s likely important to look at AI initiatives as part of a broader effort at Robinhood to use technology to close gaps between individual retail investors and the institutional players that make up significant parts of the market. In this sense, winning in AI trading tools may be less crucial than winning in the larger field of empowering individual investors. With so many new features being added to Robinhood Gold at a rapid pace, it seems that Robinhood is likely to outperform its competitors in this area.
The market itself is also remarkably bullish on Robinhood at the moment. In the last 12 months alone, shares of HOOD have risen by over 230 percent, and analysts still project a further 20 percent worth of upside left in the stock. While Robinhood is trading at a high valuation on expectations of strong future growth, the stock could still be a decent buy for growth-oriented investors as investments in AI trading tools, prediction markets, private funds and other features keep paying off in the form of membership expansion and increased revenues.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.