Bubble risk for artificial intelligence?
AI constitutes a threat and an opportunity for growth, it is scary and yet it reveals enormous potential. Even in the financial markets. The comment by Carlo Benetti, Market Specialist of GAM (Italy) SGR
“AI”, Anglo-Saxon abbreviation for artificial intelligence, has been chosen by the Collins Dictionary as the word of the year for 2023. This is not just a linguistic trend, the decision of the Collins experts is a cultural barometer indicating the power of transformation exerted by technology in reshaping the world, the pervasive influence of artificial intelligence in various aspects of our daily lives. The paradigm shift happened with Chat-GPT. Artificial intelligence has been in our lives for some time but it was Chat-GPT, so easy to use, that brought digital advancement into everyday life, fostered familiarity with the potential of generative algorithms, and started a new phase in the Industrial Revolution 4.0.
And in fact the artificial intelligence landscape has been redesigned in recent years by the establishment of numerous generative AI start-ups. Guided by innovative algorithms these new, small companies are showing how much can be achieved by autonomous content production. An aid that was unthinkable until recently for artists, writers and designers and very useful in the fields of healthcare, scientific research and data analysis. Over the last decade, investments in AI have been huge and constantly growing until last year's setback. In 2022, investments were just under 190 billion dollars, roughly a third less than in 2021.
Are we close to the bubble risk? It happened in the mid-nineteenth century with the development of railways, we experienced it just over twenty years ago with the formation and explosion of the Internet bubble. It is therefore reasonable to ask whether something like this will also happen with artificial intelligence. We believe not: the impact will be much less dramatic but there is still some reason for caution in the short term. Companies in the sector also have doubts, managers wonder if they are writing checks for investments exposed to the bubble risk but, on the other hand, there is also the belief that AI is so important that not investing would mean losing a disruptive technology, it could be bigger than the Internet ten or fifteen years ago.
Despite the setback in 2022, AI retains enormous economic potential: to increase productivity, margins or simply defend their market positions, companies will have to adapt to new technological standards. Overall, we can imagine that generative AI, due to its "disruptive" characteristics, will constitute one of the engines of economic growth.
In the short term, two major uncertainties remain. The first concerns the distribution of the benefits of technological advancement in the economy and society. The other uncertainty, which concerns both businesses and political leadership, concerns the consequences in the world of work: there will be workers affected positively and others negatively. The contribution of artificial intelligence to economic growth will increase profits, compared to its absence, in all sectors, therefore the active selection of companies will be even more necessary to evaluate those that will invest in AI to improve revenues and profits.
In the last period, things have not gone well even for the stocks of the technology sector but the momentum indicators signal the possible short-term bullish trend, there is a desire not to miss the appointment with the expected rally at the end of the year, the fact that the defensive sectors have relatively underperformed confirms a favorable scenario. Plateau interest rates, falling inflation and more reasonable valuations outline favorable conditions, fueling hopes in the final weeks of the year.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/rischio-bolla-per-lintelligenza-artificiale/ on Sun, 19 Nov 2023 06:00:56 +0000.