There has been a veritable hype cycle for AI-related tech stocks in recent years, as Wall Street hails artificial intelligence as a powerhouse of the “Fourth Industrial Revolution” and urges investors to take advantage of the “gold rush” as soon as possible. is happening. AI leaders like Microsoft and Nvidia have soared amid the excitement, driving up their profits, but some experts worry that the AI hype has gone too far, if not a full-blown bubble. Masu.
With all this in mind, investors are probably wondering, “How long will AI stocks last?”
To answer that question, Peter Oppenheimer, Goldman Sachs’ chief global equity strategist and head of European macro research, offers a wealth of information on how past technological advances have helped or deceived investors. We look to history for lessons.
Mr. Oppenheimer said: luck About his new book happy return, details the rise of many breakthrough technologies and how investors have navigated the havoc they have caused. The discussion also included a little-known and somewhat surprising technological marvel: canals.
Although largely forgotten now, canals revolutionized transportation, allowing goods to be quickly transported to ports and generating huge profits, at least initially.
Britain’s first canals were built in the mid-1700s to carry heavy cargo such as coal and iron ore, as well as fresh produce across the country. New infrastructure shortened transit times, and its popularity allowed the investors who financed the canal to reap significant profits. Their success attracted many new investors, and by the 1790s there was a bubble in canal stocks on the London Stock Exchange. As often happens, that bubble eventually burst, and Canal stocks turned out to be a bad investment for many. However, the canal itself remained and served to foster industrial production and productivity growth for years to come.
This rise and fall is similar to today’s AI boom, and there are two important lessons for investors.
Lesson 1: Networking takes time to be effective, but with AI it could take even longer
First, canals were a revolution that made it possible to transport heavy cargo faster and more affordably than the horses and carts that had preceded them, but their impact was not immediately felt. “It typically takes quite a long time for transformative innovations to fully impact the real economy and increase productivity,” Oppenheimer said, adding that “network effects” need to work their magic first. he claimed.
“In other words, things like canals and steam technology were big changes, but it wasn’t until we actually built enough steam engines, dug enough canals, built factories next to the canals, etc. Only then could we really make a difference.” We could see the impact being felt,” he explained.
Photo courtesy of Priestley & Sons Egremont/Hulton Archive/Getty Images
Despite the hype that AI can improve employee productivity and reduce costs for businesses, the reality is that after a technological revolution, change takes time.
But it’s good news for AI investors who want this technology to be put to effective use as quickly as possible. “With AI, the gap between the technology being developed and its actual economic impact may become much shorter,” Oppenheimer said.
AI is already behind existing technologies such as the internet, cloud computing, and smartphones, and this “will likely be deployed very quickly and could have a significant impact on productivity very quickly.” He argued that it meant.
Like canals (and later the steam engine), AI has the potential to radically improve productivity. In a 1904 book, canal system of england, Hubert Gordon Thompson detailed the cost savings and increased production that new canals brought to England in the 18th century. He noted that in the middle of the century, trade was “significantly hampered by high costs and lack of adequate means of transporting products to ports.” Canals solved that problem.
As an example, consider the route between Manchester and Liverpool. When the Mersey and Irwell Canals were built in 1724 and 1734, linking the two cities, the cost of transporting goods between the two cities plummeted by 70%. And when the larger and more direct Bridgwater Canal was completed in his 1761, transport costs were again cut in half and “a service superior to that provided by any of the routes previously mentioned was afforded.” writes Gordon Thompson.
Gordon Thompson also stated some facts behind the overall increase in trade through the canal. In 1761, he wrote, it was “estimated” that the total amount of goods transported between Manchester and Liverpool was only 2,000 tonnes a year, and that the average cost of a journey of about 35 miles was £1 per mile. There is. A century later, the amount increased 5,000 times. “In 1890…the traffic volume was estimated at over 10,000,000 tons, and the cost of transport was from 3/- to 8/- per ton over the entire distance,” Gordon Thompson said. Masu.
English Heritage/Heritage Images/Getty Images
Lesson 2: Long-term winners may not be AI-focused companies
Oppenheimer’s second lesson from the canal stock story is that the companies that benefit most in the long run after deploying innovative new technologies are usually not the ones that investors focus on in the short term. is.
He noted that people often get “excited” by first-mover companies who imagine they will benefit from new innovations. These companies are pouring money into commercializing the technology and creating what some analysts have called the “picks and shovels” of the revolution. “But often they’re not the biggest winners at the end of the day,” Oppenheimer said. “The biggest winners will be those who can use technology to develop new products and services.”
Oppenheimer used an example from the 1990s to prove his point. During that decade’s tech bubble, he said, excitement about the rise of the Internet drove investors to flock to the phone companies that were laying the actual “pipes” — the cables — for rolling out the Internet to consumers. It is said that
“these are, [telephone companies] Much of the revenue will come from transferring data at very high speeds,” he explained.
But in the end, he said, phone companies “ended up not really benefiting” from the Internet. They spent too much money and time building that foundation, and by the time they sold the bandwidth, the price had dropped significantly.
“They didn’t get a very good return on their capital,” Oppenheimer explained. “The real beneficiaries of the Internet were the platform companies and online retailers that were able to take advantage of the technology once it was deployed.”
So what does this mean for the average investor? Well, Microsoft, Nvidia, and other tech giants are currently benefiting from the AI boom because they are laying the foundation for the technology to work. may not be a long-term winner. Instead, it could be a company that uses AI to create new products and services.
But here’s a trick. No one knows which companies will best utilize AI in the long term. Oppenheimer also did not suggest any specific stocks, instead arguing that investors should diversify their stock holdings. So if we’re trying to learn from history, it might make sense to proceed with caution when it comes to AI. Determining winners and losers during times of technological innovation is easier said than done, and sometimes early winners make the wrong decisions.
