Stay informed with free updates
Simply sign up to the Artificial intelligence myFT Digest — delivered directly to your inbox.
Some projections of the future can appear both ridiculous and reasonable at the same time. The speculative suggestion by the star tech investor James Anderson that the US chip company Nvidia might be worth $49tn in a decade is one.
On the face of it, it seems ridiculous for Anderson (whose Lingotto Investment Management fund owns a lot of Nvidia shares) to suggest that the US chipmaker might one day be worth more than all the companies in the S&P 500 today combined.
Then again, someone will have to make stratospheric returns to justify the extraordinary surge of capital expenditure by the big US technology companies, and Nvidia looks as likely a candidate as any. One analyst has described the business, which produces the graphics processing units that run the artificial intelligence revolution, as the “nerve centre” of the AI system.
The scale of capex by the big US tech companies — Microsoft, Alphabet, Amazon, Apple and Meta — is staggering as they all heap their poker chips on their conviction that AI is going to transform the world. Their collective investment splurge amounts to arguably the biggest, and certainly the fastest, infrastructure rollout in history.
Arete Research estimates that these companies will spend about $480bn in capex in the next two years, much of it on the 100 data centres they are currently building. Many of those data centres will be powered by Nvidia’s GPUs. For the moment, that gives the company a near-monopoly position and enviable pricing power. That market dominance helps explain the 2,700 per cent increase in Nvidia’s share price over the past five years — although the company’s sharp slide over the past week suggests the first tremors of a nervous breakdown.
But the bigger questions for both the stock market, and the economy, is who will benefit most from AI and when will the financial fruits of the technology be fully realised.
Analysts say that technology booms go through a cycle, with infrastructure plays, such as Nvidia, being the first beneficiaries, platforms such as the cloud providers Microsoft, Amazon and Alphabet following next, and then application companies, such as Uber and Airbnb in the previous internet revolution, trailing behind. To date, no company has yet created a “killer app” for generative AI, although scores of start-ups have successfully sold that dream to venture capital investors.
There are wildly different views about how quickly such applications will be adopted and what their economic impact will be. In a much-discussed paper from Goldman Sachs, the MIT economist Daron Acemoglu made a powerful case that the likely benefits of AI would be a lot smaller than investors assumed and would take much longer to realise. In the meantime, there was an asymmetric risk that the technology’s downsides, such as deep fakes, might arrive quicker than the rewards.
Acemoglu forecast that AI would only boost US productivity by about 0.5 per cent and GDP by around 1 per cent over the next decade. That is dramatically lower than Goldman’s predictions of 9 per cent and 6.1 per cent, respectively. If Acemoglu’s analysis is correct, the US stock market — including Nvidia — is heading for a messy reckoning.
However, Goldman’s own senior economist Joseph Briggs countered that AI would automate many more work processes than Acemoglu assumed. Briggs argued that as in previous cycles, displaced workers would find new roles opened up by the possibilities of the latest technology, further boosting productivity. The economist David Autor had calculated that 60 per cent of workers today are in occupations that did not exist in 1940.
Yet, as one of Goldman’s analysts noted in the same report, massive spending on technology in the past has not always resulted in massive returns. Investors are still waiting for the fruits of virtual reality, the metaverse and blockchain to materialise.
Besides, other powerful headwinds are likely to buffet the corporate sector over the next few years. US corporate profits as a share of GDP are already near post-second world war highs while labour’s share is near record lows. A further surge in corporate profitability — needed to justify these vast capex investments — might only result in more societal turmoil.
Even the bullish Anderson ascribes only a 10-15 per cent probability to the data centre investment boom continuing and Nvidia hitting that $49tn valuation. Investors should be hedging against the other possibilities.
Read the full article here