There has been a significant surge in interest surrounding AI-related technology stocks in recent years, with Wall Street hailing artificial intelligence as the driving force behind the “fourth business revolution” and advising investors to capitalize on this opportunity promptly. While AI frontrunners like Microsoft and Nvidia are experiencing remarkable growth and financial gains, some experts express concerns that the hype surrounding AI may be overstated, potentially leading to a speculative bubble.
Investors are now pondering the longevity of AI companies amidst this fervor.
Peter Oppenheimer, Goldman Sachs’ head of micro studies and primary global equity strategist, looks to historical precedents to shed light on this question. History serves as a valuable guide, illustrating how past technological advancements have either benefited or misled investors.
Oppenheimer recently delved into these insights in his latest book, “Any Happy Returns,” as he explores the evolution of groundbreaking systems and how investors navigated the disruptions they caused. The discussion also delves into a lesser-known yet significant modern marvel: canals.
In the mid-1700s, the construction of initial rivers in the United Kingdom revolutionized transportation, facilitating the swift delivery of goods to docks and yielding substantial profits initially. These rivers, though now largely forgotten, played a pivotal role in enhancing industrial output and productivity for years to come.
The current trajectory of AI growth mirrors this historical pattern of ascent and decline, offering valuable lessons for investors.
Lesson 1: Social Impact Takes Time, but AI May Accelerate the Process.
While canals transformed the transportation of heavy cargo, enhancing speed and affordability compared to traditional methods like horse-drawn carts, their societal impact was not immediately evident. According to Oppenheimer, the full effects of transformative technologies, driven by “networking effects,” often require time to manifest and influence the economy’s productivity.
Despite the discourse on AI’s potential to enhance employee efficiency and reduce business costs, the realization of these benefits may unfold gradually post-technological revolution. However, the swift integration of AI with existing technologies such as the web, cloud computing, and mobile devices suggests that AI’s impact on productivity could materialize rapidly.
AI, akin to rivers and later the steam engine, holds the promise of significantly boosting productivity. Just as fresh rivers catalyzed cost savings and output growth in 18th-century England, AI has the potential to revolutionize various industries and drive economic progress.
Lesson 2: Pioneering AI Companies May Not Secure Long-Term Success.
Drawing from the canal stock saga, Oppenheimer highlights that investors often focus on early movers in revolutionary technologies, expecting them to reap substantial benefits. However, the true winners are often companies that leverage these technologies to create innovative products and services, rather than those laying the groundwork.
The example of telephone companies during the 1990s tech bubble underscores this point. While investors initially favored these companies for their role in enabling high-speed data transmission, it was software firms and online retailers that ultimately capitalized on the internet’s potential.
In the context of AI, tech giants like Microsoft and Nvidia, driving the current AI wave, may not necessarily emerge as long-term victors. Instead, companies innovating with AI to develop novel offerings could seize the competitive edge.
In conclusion, navigating the AI landscape requires a strategic and cautious approach, considering the unpredictability of technological revolutions and the shifting tides of market dynamics. As history has shown, identifying the true beneficiaries of transformative technologies demands foresight and adaptability in investment decisions.
