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Is AI the Next Bubble? A Look at the Market
The buzz around artificial intelligence (AI) in the wake of Microsoft’s investment in ChatGPT may bring memories of the dotcom bubble. However, this time is different. AI applications can redefine the economy and change how it operates, and investors aren’t blindly following the trend. McKinsey Global Institute released a report that illustrates how asset values and net worth grew faster than GDP since 2000, and productivity rates slowed down. AI offers the potential to increase productivity through process improvements, workforce efficiency, and technological progress. Despite discussions about the impact of technology on employment levels, AI’s compensation effect may outweigh the potential displacement effect.
The McKinsey Report
The report from McKinsey outlines the unusual growth of asset values and net worth compared to GDP since the turn of the millennium, showing how artificial market conditions have been for so long.
The AI Productivity Boost
AI can improve productivity by optimizing current processes and help workers make better decisions, increasing the efficiency of the workforce. It can also help workers invent new things, make new discoveries and generate technological progress that can raise future productivity.
The Compensation Effect of Technology on Labour Markets
AI could cause unemployment rates to rise. However, the ultimate impact of technology on labour markets is theoretically ambiguous. The substitution effect can displace workers, but the compensation effect may make all goods and services cheaper, raising real incomes and generating new sources of demand in other sectors of the economy. Historically the compensation effect outweighed the displacement effect.
Business Opportunities with AI
The global AI market is estimated to be worth $383bn in 2030, according to data analytics firm GlobalData, which recently acquired TS Lombard. Generative AI, capable of self-learning and performing several tasks, can help companies boost efficiency. Nvidia is one of the companies investing in AI that will benefit greatly from this process.
Conclusion
AI has the potential to become a game-changer and disrupt today’s working ecosystem. Its development comes at a time when there is a need for increased productivity. Although there is concern over AI’s impact on employment, its capabilities and capacities exceed human comprehension and have the potential to generate technological progress that raises future productivity for the economy. Investors need to be careful and separate the dross from the companies of real substance at today’s valuations.
FAQ Section
What makes AI different from the dotcom era?
Investors are not blindly following the trend of AI excitement. Unlike the dotcom bubble, where many companies saw sudden spikes in their values, investors are carefully distinguishing companies with real substance.
What is the compensation effect of technology on labour markets?
While technological advancements may cause displacement, the compensation effect of technology makes all goods and services cheaper, increasing real income and generating new sources of demand in other sectors of the economy. Historically, the compensation effect outweighed the displacement effect.
What opportunities will AI generate?
Generative AI, which is capable of self-learning and performing several tasks, will boost the efficiency of companies that use it. The global AI market is estimated to be worth $383bn in 2030, representing a 21% compound annual growth rate over 2022.
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