Posted: 3/12/2024

Artificial Intelligence Mania

Stock markets around the world performed quite well in 2023 and so far in 2024, especially those involved in artificial intelligence. The “Magnificent 7” (Microsoft, Amazon, Meta, Apple, Alphabet, Nvidia & Tesla) have a focus on AI and have driven the majority of the S&P 500 performance.  These 7 stocks rose over 85% from 1/1/23 to 1/31/2024, while the other 493 stocks in the S&P 500 only delivered 8.7%.

Many companies are attempting to join the AI craze as over a third mentioned it in their earnings calls last year, compared to less than 1% from 2010-2014.

J.P. Morgan suggests, “every decade, a technology platform shift is accompanied by a major disruption in tech leadership. As these shifts play out, some businesses can sustain their leadership, but they are few and far between. The strongest companies today can be disrupted if they fail to capture the next platform or lose market share in their core business,” as shown below.

Time will tell if the 2020 decade turns out to be the AI theme, but it is certainly trending in that direction so far.

J.P. Morgan goes even further by suggesting, “artificial intelligence (AI) technologies appear likely to revolutionize the way we work, innovate and create. Generative AI can create novel, human-like output across various domains, making it highly versatile and intuitive. As such, it has the potential to become a “general-purpose technology” like the steam engine and computer, transforming the global economy. When Apple had its iPhone moment in 2007, it set off a series of incremental yet meaningful iterations in the mobile phone market. Those iterations made mobile phones more useful and deepened our historical understanding of what made Apple’s innovation so powerful. As waves of innovation moved in a cycle, entirely new industries were created. We think the same process is now underway with AI and when we look back in 10 years, we expect to see profound change.”

We are continuing to keep a close eye on how these types of changes impact the stock market and ultimately the impact on client portfolios. We’ve said it before, “today’s headlines and tomorrow’s reality are seldom the same”. But it doesn’t mean we aren’t paying close attention!

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