The AI Pendulum: From Apocalypse to Utopia
The discourse around artificial intelligence (AI) development is like a roller coaster ride. One moment, we’re all doomed, with AI as the harbinger of our destruction. The next, we’re on cloud nine, with AI as the savior of our economic woes.
Marc Andreessen, a prominent venture capitalist, recently painted a rosy picture of AI’s impact, predicting a dramatic acceleration in productivity growth, economic growth, job creation, and wage growth. Investors, for the most part, seem to be buying into this optimism.
Manish Kabra of Société Générale suggests that without AI-related stocks, the S&P 500 index would have seen a mere 1% increase in the first half of 2023, instead of the 15% it actually experienced. But Dhaval Joshi, chief strategist at BCA Research, warns that this euphoria is completely disassociated from the near-term evolution of the global economy.
The AI Gold Rush: Nvidia and DotDigital
Nvidia, a company known for its graphics processing units (GPUs) that power video games, is one of the hottest AI-related stocks. GPUs are also ideal for developing AI, and Nvidia’s second-quarter revenues are expected to jump to $11bn, from $7.2bn in the first quarter. This has propelled the company’s market value to $1tn.
In the UK, investor enthusiasm is centered around DotDigital, a group that helps businesses automate their marketing campaigns.
The AI Hype: A Reality Check
Investors who remember the dotcom boom of the late 1990s might be feeling a sense of déjà vu. Back then, money flowed into technology stocks, but many early dotcom pioneers fell by the wayside. The tech-heavy Nasdaq index rose fivefold between the start of 1996 and early 2000, only to fall 78% by the autumn of 2002.
This should serve as a reminder that patience is key when new technology trends emerge. The development of AI is undoubtedly significant for the global economy and financial markets. However, the scale of that significance is difficult to judge because the technology is still in its early stages.
The Promised Productivity Boost
AI might bring changes to our lives in three ways. First, AI can substitute for a lot of the “grunt work” that occupies the time of knowledge workers. Second, AI can be used for efficiency gains. And third, the brainpower of AI may be able to drive innovation because it can make faster calculations and perform deeper analysis than humans.
The Downside Dangers
Despite the potential gains, AI also has its drawbacks. It may pose a threat to jobs, especially among administrative staff. The information it provides can be unreliable. And AI can be used for malign purposes, such as generating fake videos and news stories.
Remember Dotcom
To put AI into perspective, there have been three or four transformative technologies over the past 250 years. AI may come to be seen as merely one phase in the computer revolution, rather than as a transformative technology in its own right.
Slim Pickings for Private Investors
Investors may need to be selective in their approach to AI. Apart from Nvidia, many of the stocks that have attracted most of the AI enthusiasm are the technology giants. However, this may be a relatively short-term development.
