Two companies – Nvidia and Microsoft – each are worth more than $4 trillion. Together, that’s more than India’s and Japan’s combined annual output. Price is what you pay, as Warren Buffett put it. Value is what you get. Our question for today: how much value will investors get from the Magnificent Seven?
Our Law of Conservation of Value tells us that prices cannot stray too far or too long from value. And value depends on output. Investors ought to be able to look to a future stream of income and from it earn their money back, and more. Even in the dotcom bubble in 1999, the top firms were not as valuable or as concentrated as they are today. Nvidia, Microsoft, Alphabet, Apple, Meta, Tesla and Amazon – together, these firms make up a third of total US stock market value, an amount roughly equal to China’s GDP.
Sign up to Money Morning
Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
We don’t know how reliable or meaningful these figures are. What we do know is that they aren’t very impressive. As in the dotcom boom of the late 1990s, AI is not paying off. Huge investments are being made in the hope of creating AI-based wealth. But so far, the output doesn’t measure up.
You can go to ChatGPT, for example, and pay for the service. Many people use it occasionally – including us. But few pay for it – also including us. This would be fine, except that so much investment has gone into AI development that anything less than spectacular results will look like failure. One estimate, from Goldman Sachsshowed that the Magnificent Seven big tech stocks would have to produce $600 billion in extra annual revenue to make sense of their investment.
How will the AI boom end?
The appeal of the dotcom era was the idea that more information would lead to higher GDP growth rates with less need for capital investment.
Costly trial-and-error expansion would be replaced by less costly, more precise, knowledge-driven growth, or so it was believed. It didn’t work out that way. Productivity and growth rates generally softened throughout the 21st century. Capital investment went down. The internet/information revolution did not compensate for the decline; it seems to have made it worse. In the last half century, the rise in labour productivity in developed economies has declined from about 2% annually in the 1990s to 0.8% in the last decade, says the OECD think tank.
Will that change with AI? Probably not. The defining curse of the information revolution was too much information. It piled up. It got distorted and misinterpreted. It took time and money to store and sort. Much of it was false or useless. Now cometh AI, adding to the problem. Which leaves, at least for now, AI and the Magnificent Seven in an old-fashioned bubble. Stock prices are far higher than actual sales and profits can account for. So one way or another price and value will have to come back together. Some breakthrough might lead to a big burst of gains and growth. More likely is that stock prices will fall.
For more from Bill, see bonnerprivateresearch.com
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Understanding Financial Trends: Navigating the AI Boom and Investment Strategies
As we step into an era defined by technology, the impacts of the AI boom on personal finance, business growth, and insurance are profound. Those who adapt to these changes stand to gain substantial benefits, while others may face significant risks. In this blog post, we’ll delve into personal finance tips, effective business growth strategies, and the best insurance coverage options to help you navigate this evolving landscape.
The Impact of AI on Personal Finance
Why It Matters
Artificial Intelligence is revolutionizing how we manage money, from budgeting apps to robo-advisors that automate investment strategies. Understanding these tools can enhance your financial literacy and improve your investment success.
Personal Finance Tips
- Automate Savings: Consider using AI-powered budgeting tools like YNAB or Mint that learn your spending habits and help you save automatically.
- Invest Smartly: Platforms like Betterment and Wealthfront utilize algorithms to tailor your investment portfolio based on your financial goals and risk tolerance.
- Risk Management Solutions: Explore AI tools that predict market trends to make informed decisions about investment diversification.
Business Growth Strategies in the Age of AI
Embrace Technology
Businesses leveraging AI can optimize operations, reduce costs, and enhance customer experience—all critical factors for growth.
Steps to Implement AI in Your Business
- Identify Key Areas: Focus on aspects of your business that can benefit from AI, such as customer service, marketing, or supply chain management.
- Choose the Right Tools: Tools like Salesforce Einstein or HubSpot can help automate customer interactions and streamline operations.
- Train Your Team: Ensure that your employees are trained to use these technologies effectively, maximizing their potential benefits.
Monitoring Outcomes
- KPIs: Track key performance indicators to measure the effectiveness of AI in your business processes.
- Feedback Loops: Regularly seek feedback from customers and staff to improve AI implementations.
Insurance Coverage Options in a Digital World
Understanding Coverage in the AI Era
The rise of AI affects insurance needs, from cyber liability to data breach coverage.
Choosing the Right Insurance
- Cyber Liability Insurance: As businesses increasingly rely on technology, consider policies that protect against data breaches and cyberattacks.
- General Liability Insurance: Ensure your business is covered against risks, even in a digital landscape.
- Review Regularly: Evaluate your coverage annually as your business and the technological landscape evolve.
Common Questions About Finance, Business, and Insurance
FAQ Section
Q1: How can I manage my personal finances effectively?
A1: Start by tracking your expenses, setting a budget, and utilizing financial apps. Automating savings can improve your financial health.
Q2: Are there specific AI tools for small businesses?
A2: Yes, tools like Zapier for automation and Chatbots for customer service are excellent for small businesses looking to integrate AI efficiently.
Q3: What type of insurance should my small business consider?
A3: Essential coverage includes general liability, property insurance, and, depending on your business model, cyber liability insurance.
Conclusion: Stay Ahead with Technology
As the AI boom reshapes financial landscapes, embracing technology can lead to enhanced personal finance management, innovative business growth strategies, and comprehensive insurance solutions. Regularly updating your knowledge and practices will keep you ahead in navigating these changes.
We invite you to share your experiences, concerns, or questions in the comments section below. Your input can foster a community of learning and trust, enabling us all to grow financially and professionally.
Call to Action
Explore these strategies, adapt them to your needs, and don’t hesitate to ask for help or further advice in the comments!
By continually updating content to align with market changes and new technologies, this blog post remains relevant and engaging for all readers. Remember, knowledge is power in the ever-evolving world of finance, and being proactive can lead to significant rewards.