Artificial Intelligence Sparks a New Productivity Surge and Market Growth

JJohn October 7, 2023 12:01 AM

A promising boom in artificial intelligence (AI) is set to revolutionize the tech industry and beyond. With companies like Nvidia leading the charge, strategists predict a surge in productivity and potential stock market rallies reminiscent of the 1990s internet-fueled boom.

AI's potential to reward broader stocks

The power of AI has been heavily endorsed by Nvidia Corp., with its share price gaining over 200% in 2023. This enticing prospect of AI has proven bountiful for tech giants, resulting in a surge in their market value. Now, market strategists are mulling over the potential for this trend to reward a much wider array of stocks, with some even drawing parallels with the internet-fueled boom of the 1990s that led to significant productivity gains and sparked massive stock market rallies.

AI's transformative potential beyond tech

There's a growing consensus that AI is more than just a product; it's a game-changer that could revolutionize a broad assortment of companies and industries. Indrani De, head of global investment research at FTSE Russell, estimates that AI could transition from being just a product to becoming a tool that's universally used in numerous spheres of corporate life. As such, AI could trigger another productivity boom, similar in scale to the internet-backed boom of the 90s.

AI's role in fast-tracking decision making

The advent of AI has made it possible to process massive amounts of information quickly, leading to faster decision-making and enhanced efficiency. This remarkable capability of AI can be beneficial to a multitude of industries. For instance, asset managers can leverage AI to make astute investment decisions, while companies with complex supply chains can have a better handle on their inventories. Essentially, with AI, businesses can digest and interpret data faster, paving the way for swifter, more informed decision-making.

AI is particularly beneficial for companies that operate on thin profit margins and employ large numbers of people. By leveraging AI, these companies can significantly ramp up their productivity, leading to boosted earnings and ultimately, higher share prices. Although it might take a couple of years for these productivity gains to materialize, Jeff Schulze, head of strategy at New York-based ClearBridge Investments, believes that they will be a key driver for the latter half of this decade.

Even though the stock market has recently experienced some turbulence and bond yields have surged to new multiyear highs, strategists remain optimistic about the potential for long-term market growth, driven by AI. The current rise in bond yields may reflect investor uncertainty over U.S. politics and creditworthiness, as well as rising borrowing costs that are impacting consumers. However, some strategists believe that these are just short-term headwinds, and that AI's transformative power could spur significant market growth in the long run.

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