Investment behemoth sounds alarm on AI risks
Vanguard’s chief economist has cautioned that the immediate impact of AI in the US is being exaggerated, potentially increasing the likelihood of a correction in share prices. Read Full Article at RT.com
TroibNews 
Market players engaging “wildly” with the technology are exposing themselves to the risk of a correction, according to Vanguard’s chief economist.
Investor enthusiasm surrounding AI equities in the US stock market has led to an overestimation of the technology's near-term potential, which may jeopardize share prices, warns Vanguard, as reported by the Financial Times.
AI-related stocks have significantly contributed to the increasing momentum of the US stock market, with the S&P 500 index experiencing a 27% rise this year. Approximately one fifth of this growth is attributed to Nvidia, a primary chip supplier for AI, whose stock price has surged by nearly 180% year to date in 2024.
Vanguard chief economist Joe Davis contends that investors are misjudging the short-term effects of the technology, despite the potential for AI to have “revolutionary” impacts akin to the advent of personal computers in the 1980s, the outlet reported on Tuesday. He expressed that share prices in the US technology and communication services sectors are “inexplicably high” compared to anticipated corporate profit growth rates.
“We see roughly 60% to 65% odds that AI is more impactful than the personal computer. The US stock market today is pricing roughly a 90% probability,” Davis stated.
He drew parallels between the current economic climate and that of the 1990s, a period when a boom in personal computers led to soaring equity prices, ultimately culminating in a telecom-driven crash in 2000.
“From an economic perspective we’re roughly in the year 1992 but from the market valuation perspective, I can make the argument that we’re in 1997,” he remarked, suggesting the possibility of a bubble in the current market.
According to Davis, who helms the world's second-largest asset management group, investors often experience initial euphoria which is followed by disappointment when the anticipated benefits of new technologies are not swiftly realized. While he acknowledges that AI might yield transformative effects in the years to come, he believes that earnings growth expectations for the next three to five years are “wildly” optimistic.
Furthermore, Davis cautioned that companies most directly involved in the AI investment surge may not ultimately become the leading profit-makers. He argued that the true beneficiaries will likely be those entities that actively implement the technology, such as hospitals, utilities, and financial institutions.
Rohan Mehta for TROIB News
Investor enthusiasm surrounding AI equities in the US stock market has led to an overestimation of the technology's near-term potential, which may jeopardize share prices, warns Vanguard, as reported by the Financial Times.
AI-related stocks have significantly contributed to the increasing momentum of the US stock market, with the S&P 500 index experiencing a 27% rise this year. Approximately one fifth of this growth is attributed to Nvidia, a primary chip supplier for AI, whose stock price has surged by nearly 180% year to date in 2024.
Vanguard chief economist Joe Davis contends that investors are misjudging the short-term effects of the technology, despite the potential for AI to have “revolutionary” impacts akin to the advent of personal computers in the 1980s, the outlet reported on Tuesday. He expressed that share prices in the US technology and communication services sectors are “inexplicably high” compared to anticipated corporate profit growth rates.
“We see roughly 60% to 65% odds that AI is more impactful than the personal computer. The US stock market today is pricing roughly a 90% probability,” Davis stated.
He drew parallels between the current economic climate and that of the 1990s, a period when a boom in personal computers led to soaring equity prices, ultimately culminating in a telecom-driven crash in 2000.
“From an economic perspective we’re roughly in the year 1992 but from the market valuation perspective, I can make the argument that we’re in 1997,” he remarked, suggesting the possibility of a bubble in the current market.
According to Davis, who helms the world's second-largest asset management group, investors often experience initial euphoria which is followed by disappointment when the anticipated benefits of new technologies are not swiftly realized. While he acknowledges that AI might yield transformative effects in the years to come, he believes that earnings growth expectations for the next three to five years are “wildly” optimistic.
Furthermore, Davis cautioned that companies most directly involved in the AI investment surge may not ultimately become the leading profit-makers. He argued that the true beneficiaries will likely be those entities that actively implement the technology, such as hospitals, utilities, and financial institutions.
Rohan Mehta for TROIB News
