Where is artificial intelligence, particularly generative, from an economic and financial point of view? The decline in stock market values last summer raised the question. If certain economic models are more fragile than we thought, the fundamentals remain solid. Development could be slowed down. Not stopped.
The summer break was eventful on the financial markets, and more particularly for stocks linked to artificial intelligence (AI) which experienced a corrective movement of unprecedented magnitude. The “Magnificent Five” (Nvidia, Microsoft, Amazon, Alphabet, Apple) thus gave up between 15% and 19% of their value. Once the summer fever has subsided, what lessons can we learn from it? Have we seen a simple momentary technical correction – as suggested by the rise of the Nasdaq over the last few months – or at the beginning of a deflating of the AI bubble?
200 billion dollars
The battle for AI is first being played out in financial markets. The arms race to build a portfolio of strategic assets, fundamental models, computing and storage infrastructures, and now even nuclear power plants to power data centers requires colossal investments. This year, these investments will have been more than 200 billion dollars which will have been invested by GAFAM alone in AI, and already there are whispers of Nvidia’s potential investment in xAI which would value Elon Musk’s firm specializing in AI at $75 billion. It is an acceleration of more than 45% compared to 2023, which was already a record year.
However, these massive investments are part of a macro-economic context marked by uncertainties (geopolitical tensions, pressure on resources, slowdown in global growth, etc.) which can encourage investors to make capital gains by reducing their debt on technological stocks which have soared on the one hand, and to shift to less volatile, more readable, and ultimately, less risky values on the other hand. But, more than the macroeconomic context, it is the question of the very existence of a bubble around AI that must be asked.
Disappointing productivity gains
First reason for concern: the promised increase in productivity which is dangerously overdue. In 2023, Goldman Sachs anticipated productivity gains of 9.2% and a contribution of 6.1 points to American growth for the next decade! However, these predictions were recently challenged by Daron Acemoglu, the highly respected MIT economist specializing in innovation, whose latest modeling work report potential productivity gains of 0.56% and a contribution to growth limited to 1 point. A real cold shower.
Contrary to the commercial promises of AI promoters, the academic estimates that, for the next decade, only 19.9% of business tasks are exposed to AI, of which only 4.6% can be profitably automated. Despite this, without demonstration of productivity gains for businesses, it is difficult for a company, especially in the macro-economic context, to subscribe to the offerings of AI promoters. Faced with the colossal amounts invested, the question of the economic solidity and robustness of the business models of AI promoters could quickly arise. But if for GAFAM with diversified and abundant resources, the bet should remain generally viable, for start-ups or specialized companies, the future could darken relatively quickly if the pace of investments were to slow down. In any case, this is what the CEO of Baidu seems to
How does Dr. Carter view the long-term impact of large-scale investments in AI by major tech companies?
## Interview with AI Economist
**Host:** Welcome back to the show. Today we’re delving into the rapidly evolving world of artificial intelligence and its impact on the economy. To help us navigate this complex landscape, we have with us Dr. Emily Carter, an economist specializing in the financial implications of emerging technologies. Welcome Dr. Carter.
**Dr. Carter:** It’s a pleasure to be here.
**Host:** So, Dr. Carter, the stock market saw some significant fluctuations this summer, particularly within the AI sector. Some analysts are calling it a bubble. What’s your take on that?
**Dr. Carter:** It’s certainly true that we saw a corrective movement in AI-linked stocks. These were unprecedented gains fueled by enormous enthusiasm around the potential of generative AI. While the fundamentals of the technology remain strong, the summer slump does highlight a need for caution. Perhaps we saw a slight over-correction driven by hype. [[1](https://www.investopedia.com/economic-impact-of-generative-ai-7976252)]
**Host:** We also see companies like the “Magnificent Five” pouring billions into AI research and development. Is this a sustainable trend? Will it inevitably lead to economic slowdown?
**Dr. Carter:** The massive investments in AI are undeniable, with GAFAM companies alone committing over $200 billion this year. While this can lead to short-term economic adjustments, it’s crucial to remember these are long-term investments. This technology has the potential to revolutionize industries, create new jobs, and drive overall economic growth.[[[[
**Host:** So, you’re optimistic about the long-term prospects of AI?
**Dr. Carter:** Cautiously optimistic. Like any technological revolution, there will be challenges and adjustments along the way. But the potential benefits, both economic and societal, are too significant to ignore.
**Host:** Thank you so much for sharing your insights, Dr. Carter. This is certainly a conversation we’ll continue to follow.
