The Lead-Lag Report: Dissecting the AI Revolution’s Economic Ripple Effects
AI has been the market’s hot trend for over a year now. It’s allowed many big-tech companies playing to the trend to reach new all-time highs. Companies have reported how they’re investing in AI tools to improve their returns.
On the surface, there’s much that looks similar to the rollout of the internet. For society, that could mean fantastic improvements in productivity in the coming years. It could even rival the productivity boom of the 1990s.
And, much like the 1990s, investors may first overcommit capital to AI investments. A great AI technology may not necessarily make a good investment.
The internet era saw the rise of plenty of companies that sounded attractive on paper. But they failed to earn a profit from the idea, and failed.
Likewise, the capital moving into AI projects will likely see some of it wasted. That means investors should be cautious on where they invest.
AI industry leaders such as Nvidia (NVDA) also trade at a high valuation. If they were to lose market share for some reason, that valuation could drop substantially.
Even if Nvidia continues its lead, it could see slowing returns over time. That could be comparable to how companies like Microsoft (MSFT) slowed down after it saturated the computer market, and before they started looking into other lines of business.