Title: The ai Revolution: A Game Changer or Just Another Market Bubble?
The line between a technological revolution and a market bubble can oftentimes be blurred. Patience and a clear perspective are crucial elements, two traits not always associated with Wall Street. However, as the artificial intelligence (ai) boom permeates various aspects of workers’ lives and propels stocks to new heights, investors ponder whether ai is the genuine deal or a fleeting market phenomenon.
The stock markets have witnessed remarkable growth in the tech sector, particularly with companies specializing in ai technology. Nvidia’s stock, a California-based chipmaker, has seen an unprecedented surge, with gains of approximately 240% over the past year. AMD and Taiwan Semiconductor Manufacturing Co have also experienced significant growth, with increases of 126.5% and nearly 50%, respectively, since last year.
The leading tech companies that dominate the S&P 500 have experienced substantial benefits from ai buzz. The “Magnificent Seven” – Apple, Microsoft, Nvidia, Amazon, Google, Meta, and Tesla – have collectively gained about 55% over the past year. Meanwhile, large companies are increasingly investing heavily in ai technology, sometimes even laying off employees to prepare for increased productivity through automation.
Jamie Dimon, CEO of JPMorgan Chase, voiced his belief that ai is not just hype but a genuine keyboards-changer during an interview with CNBC. He stated, “When we had the internet bubble the first time around… that was hype. This is not hype.” Dimon, who is generally skeptical of new technologies and trends, acknowledged that there are approximately 200 people at JPMorgan dedicated to researching generative ai.
However, not everyone is fully convinced of the long-term benefits of ai technology. Torsten Slok, chief economist at Apollo Global Management, wrote in a note to investors that the top 10 companies in the S&P 500 are currently more overvalued than during the tech bubble in the mid-1990s, based on their price-to-earnings ratios. Yung-Yu Ma, chief investment officer at BMO Wealth Management, explained, “The idea that ai can unleash both spending and productivity is a strong narrative that markets are focused on right now. But the sole focus on ai is worrisome.”
Some investors are also expressing concerns about Big Tech’s investment in ai. Apple, for instance, is reportedly allocating about $1 billion annually to generative ai research. Two major shareholders of Apple, Norges Bank Investment Management and Legal & General, have announced their support for a resolution at the company’s annual shareholder meeting on Wednesday that would require Apple to disclose and report ai-related risks. The proposal requests the company to “disclose any ethical guidelines that the company has adopted regarding use of ai technology.”
In response, Apple proposed skipping the vote and argued that shareholders were overstepping their bounds by requesting the disclosure of ai risks. However, the US Securities and Exchange Commission (SEC) disagreed, stating that the proposal “transcends ordinary business matters and does not seek to micromanage the company.”
This year has seen a significant increase in the number of 401(k) “millionaires,” as strong market performance, steady savings rates, and employer-provided matching contributions led to substantial portfolio growth. Fidelity Investments reported that the average 401(k) balance rose to $118,600 at the end of the fourth quarter, representing a 14% increase for the year. Gen Xers, who will start retiring over the next decade, saw an average balance of $500,000 among those who have been saving for at least 15 years consecutively. Additionally, the number of 401(k) accounts with balances of $1 million or more increased by 20% to 422,000 in the fourth quarter and by 41% for the year.
Beyond Meat experienced a significant surge in its stock price after announcing cost-cutting measures and a transition to a “leaner operating structure” during its fourth-quarter financial report. The plant-based meat company has faced falling demand and escalating costs in recent years, but on Tuesday, it outlined a turnaround plan to address these issues. Beyond Meat announced plans to reduce its operating budget by at least $70 million in 2024 and discontinue its Beyond Meat jerky line to focus on more profitable offerings. The company did not specify whether layoffs would be part of the cost-cutting measures.
In conclusion, the debate surrounding ai and its long-term impact on the stock market continues to intensify, with opinions ranging from genuine revolutionary potential to another market bubble. As companies and investors allocate resources towards ai technology and witness the accompanying growth, it is crucial for both parties to approach the situation with a clear perspective and a long-term vision.
