The AI Party Looks Like It’s Just Getting Started

The AI Party Looks Like It’s Just Getting Started
Theodora Lee Joseph, CFA

3 months ago2 mins

The tech sector has been the superstar performer of the past decade, and with AI potentially commanding the next phase of growth, it’s safe to say it’s not giving up the stage to anyone else.

Generative AI is about to become indispensable, upending the world of work and ultimately delivering a significant boost to global economic growth. In a recent outlook, Goldman Sachs analysts estimate that AI will start measurably impacting US GDP by 2027, before rippling across other economies. Their forecast suggests AI could automate about 25% of labor tasks in advanced economies like the US and Japan, and 10% to 20% of tasks in emerging economies. It’s a good news/bad news story for the economy, resulting in a rise in productivity, as well as a rise in unemployment.

The analysts predict we’ll see AI boost US economic growth by 0.4 percentage points by 2034, and see similar subsequent impacts across other developed markets and some emerging markets. They’re betting that AI will crank up US productivity growth by 1.5 percentage points each year for more than ten years, potentially allowing US companies to rake in more profits – expanding their valuation multiples.

Those gains may not happen in one fell swoop, mind you: they’ll be shaped by how quickly the technologies are adopted, the extent to which AI spending replaces other investments in information and communication technology, the evolving capabilities of AI, and the possible regulatory roadblocks it might face.

And, sure, with those uncertainties, it may seem reasonable to think the market might be headed for another tech bubble – with just a few giants dominating the US market and with their stock concentration rising. But hold up: before you get too nervous, remember that current tech valuations aren’t as stretched as they were in past bubbles. And the tech giants with the biggest returns today generally have solid balance sheets. What’s more, one thing’s for sure: AI is here to stay, and if you haven’t jumped on the bandwagon, you’re not late. A few early birds have scored, but there are plenty more opportunities with potentially massive payoffs down the road.



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