Rapid rise of AI makes it the most important driver of global economic activity
AI now underpins everything from the US-China trade war to decisions over the future of nuclear energy
SEVERAL technology mega trends, the latest being artificial intelligence (AI), have overwhelmingly shaped the stock market for the last 25 years or so.
According to strategists at Morgan Stanley, to make money on the equities market, an investor must surf the cusp between finance and science fiction.
In a recent speculative research note titled “What if?” where they talked about the “trillion-dollar known unknowns”, they pointed out that 2.4 per cent of global listed companies generated all of the net shareholder returns from 1990 to 2020.
“These stocks largely piggy-backed on the structural themes of the day: Internet and mobile,” the report said.
The reason why Apple and Amazon have the most dizzying returns of all 21st-century companies – tens of thousands of percentage points, in their cases – is that they positioned themselves at the intersection of science fiction and reality in all the major areas: e-commerce, smartphones, tablets and robots.
A quarter-of-a-century ago, the risk of AI taking over the world was mostly only seen in Hollywood movies such as the “Terminator” franchise. And apart from defeating humans in chess, robots did not seem to have any capacity for independent thought.
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Today, AI is unquestionably the most important driver of global economic activity, underpinning everything from the US-China trade war to decisions over the future of nuclear energy.
According to one US tech executive, who did not wish to be named because of the sensitivity of his work, not even the early developers of AI anticipated the speed of its advance.
In their report, the Morgan Stanley analysts’ described a “what if” scenario involving self-driving cars. US-based chip designer Nvidia has made strides on the chips needed to enable safe robotic cars, they noted.
Should the adoption of self-driving cars happen as rapidly as that of generative AI, there would be major implications for auto insurance (insurers have long warned that a fleet of cars with automated safety sensors would send premiums lower); for manufacturers and for energy producers.
There are second-order events too. Self-driving cars would be more like public transit than driver-bearing cars, simply because they would never need to sleep. For this reason, Morgan Stanley estimates that some or all of the 30 per cent of urban land in the US that’s used for parking could be affected in one way or another.
Indeed, people could start to think differently about where they live if they can be whisked from point to point by a safe terrestrial form of transportation and not feel much of a difference.
“Finally, what if car ownership then becomes an entirely outdated concept, meaning gen-alpha (people born from 2010 to 2024) never have to learn how to drive, and what if the real estate market paradigms of urban versus suburban living are upended?” said the analysts.
Another disruptive AI application would be the use of learning software in managing consumers’ digital subscriptions.
In theory, content providers could be forced into a race to the bottom as AI software constantly churns each of us in and out of the cheapest offerings, gaming every free offer or promotional rate instantaneously.
A more double-edged, if still somewhat dystopian “what-if” concerns humanoid robots. There’s a chance, the analysts argue, that the robots under development at companies like Honda Motor begin selling for less than US$20,000 each – a comfortable enough level at which manufacturers and engineering firms may start to buy these machines in bulk.
Rise of Europe
On a separate note, the Morgan Stanley analysts also outlined scenarios in which Europe’s perceived disadvantages – lagging productivity, migrant tensions, and a lack of fossil-fuel power options – could become advantages.
For example, Europe could tap its ample nuclear-power capacities to close the gap on the US and China in tech development and alleviate the cost burden that has atrophied the continent’s manufacturing sector.
And lastly, they also wondered if the “rising scarcity” of blue-chip quality growth stocks in public markets, particularly in regions like Europe, mean that traditional asset-pricing models and portfolio construction heuristics of the past could no longer be relied upon to outperform indices.
In more simple terms, there’s always that possibility in the perhaps not-too-distant future that direct investment in exchange-traded funds replaces brokers, investment banks and middlemen altogether.
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