Generative artificial intelligence: a powerful performance driver for the market
Generative artificial intelligence (AI) is a major disruptive breakthrough in technological progress. It offers a new frontier in natural-language generation, original content creation, and in handling complex concepts. The early days of its mass roll-out have revealed tremendous potential for productivity, particularly in knowledge work (work that uses knowledge to create added value).
Financial markets seize the opportunity
Financial markets were quick to seize this opportunity, making AI a powerful performance driver for the main stock market indices since the start of the year. Companies in the tech sector stand to benefit from the first phase of deploying the building blocks of AI infrastructure: including servers, data bases, and high-performance processors. This year, the 10 US tech giants specialised in AI — among them NVIDIA, Apple, Google, Amazon, Microsoft, AMD, and Tesla — account for as much as 10-12%(1) of the performance of the US stock market index, the S&P 500. Going forward, AI could be a real game-changer for economic productivity and have a favourable impact on long-term growth, as fast adoption promises to unlock growth and have a powerful disinflationary effect.
Productivity gains to be made
Unlike other technologies that have entered the scene in the past few decades, AI emerges as a mature technology geared towards knowledge work. By design, it boosts productivity by executing faster and more efficiently the tasks performed by humans every day, particularly in the services sector. It is a “substitution technology” that can be used to replace or improve existing tasks at a lower cost.
For the economy, there are enormous potential productivity gains to be made. In its June 2023 report The economic potential of generative AI, McKinsey predicts that generative AI could accelerate productivity to an annual average of 3.3% by 2040, versus 2.5% over the last decade. This translates to between $2.6 trillion and $4.4 trillion annually — as much as the United Kingdom’s GDP in 2021 (estimated at $3.1 trillion in 2021). With AI expected to automate 60 to 70% of work time, this growth acceleration comes at the right time: the effects of an ageing population is limiting the workforce.
Impacts in terms of employment
AI's take-off will most certainly have a profound impact on the job market, potentially resulting in redeployment to other types of work. However, this technical progress has also recently resulted in a highly polarised job market and a rise in inequalities(2). Addressing these profound changes, will require implementing public policies on the redeployment of the technology’s roll-out.t
While the applications of AI are vast, most are for industries that consume massive amounts of data and analyses. Developed countries are well placed to reap the full benefits of this new era, and restore their prospects for real growth. Unsurprisingly, US companies have a head start in technological building blocks; nevertheless, but Europe and Japan have much to gain in services and knowledge work.
Article sourced from: David Seban-Jeantet, “L’intelligence artificielle générative: un puissant moteur de performance pour les marchés”, Agefi Luxembourg, July 2023.
(1) Figures at 04/10/2023.
(2) Source: Paper by Thomas Piketty.
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