Since Microsoft announced its investment in ChatGPT in January, the media hype about artificial intelligence is inevitably a reminder of the excesses of the dot-com bubble.
the feeling of déjà vu The momentum was further boosted last week when the market cap of Nvidia, which offers chips to power AI applications, notably ChatGPT, briefly topped $1 trillion. So would I go here again?
Actually, no. There are a lot of healthy things in this AI buzz in the market.
Last year’s plunge in big tech stocks had a lot to do with central bank interest rate hikes. Applying high discount rates to the far future cash flows of the tech sector shrunk the present value of those cash flows. This year’s rally is far from central bank influence and reflects reality.
Simulating human intelligence in machines has dramatic potential to change the way the economy works. Some people benefit greatly from this process. In the case of Nvidia, it’s already made a good profit this year.
Now that the monetary tightening cycle has been going on for some time, it’s easy to forget how long artificial market conditions have lasted. A new report from the McKinsey Global Institute finds that until the 2000s, growth in global net worth largely tracked growth in gross domestic product. But then something unusual happened.
Starting around the year 2000, net worth, asset values, and debt began to grow faster than GDP, although the timing varied from country to country. In contrast, productivity growth in the G7 countries has slowed, falling from 1.8% per year in 1980-2000 to 0.8% in 2000-2018. AI has the potential to lead us beyond a world of high asset prices and debt. It relies on growth through its ability to increase productivity.
Dario Perkins of TS Lombard suggests that two mechanisms drive this improvement. First, AI can make current processes more efficient. This is already helping employees make better-informed decisions, optimize processes, and remove routine tasks. As a result, labor efficiency should increase and overall output should increase.
And AI can help workers invent new things, make new discoveries, and create technological advances that will boost productivity in the future. On the other hand, many studies show that generative AI, which can self-learn and perform multiple tasks, improves the efficiency of the workers and companies that use it.
Also note that all this can happen much faster than in the dotcom bubble. The public version of ChatGPT, he reached 100 million users in just two months. Data analytics firm GlobalData (which recently acquired TS Lombard) estimates that the global AI market will be worth $383 billion in 2030, with CAGR of 21% between 2022 and 2022. increase.
Many media commentaries have touted that AI could cause unemployment to skyrocket, and concerns have been fueled by AI enthusiasts talking about cutting labor costs. But Perkins says the ultimate impact of technology on the labor market is theoretically ambiguous.
This is because technological advances have two opposing effects. One is the substitution or displacement effect that labor-saving technologies displace workers; the other is that technology makes all goods and services cheaper, increases real incomes, and creates new sources of compensation effect. Also in other areas of the economy. Throughout history, compensation effects have always outweighed displacement effects.
No one knows if AI will reverse its historical trend or actually reach or exceed the level of human comprehension. At its current stage of development, it can be unreliable and spew nonsense. Equally incalculable is whether the impact of AI deflation will outweigh current inflationary forces from supply shortages and tight labor markets, and future price pressures from shrinking working populations in advanced economies and China. .
Nvidia CEO Jensen Huang saw a “tipping point in the new computing era” last week. he may be right Big tech companies are likely to continue to behave differently than traditional companies in the S&P 500 index, which are sensitive to monetary policy. One lesson investors should remember from the dot-com era is that a lot of wreckage rises alongside real companies. At today’s valuations, it may not be far from picking the dregs.
john.plender@ft.com
