(Repeats Wenesday’s column to additional subscribers without any changes. The opinions expressed here are those of the author, a columnist for Reuters.)
By Jamie McGeever
ORLANDO, Florida, Feb 25 (Reuters) – In financial markets, nothing sells like doom. But recent fears about the disruptive potential of artificial intelligence have battered stock prices and investor sentiment so much that a reality check is warranted.
The widespread AI euphoria that swept over Wall Street for much of the last year was probably unjustified, but so too is the fear that has gripped investors recently, sending the U.S. software services sector down 20% in less than a month.
These anxieties have been stoked by a series of viral long-form blog posts touting apocalyptic AI scenarios: millions of office jobs lost, spending power vanishes, demand is destroyed, the economy plunges into a deflationary tailspin, and stocks crash.
The latest wave of worry was triggered by a 7,000-word piece, “The 2028 Global Intelligence Crisis,” published by analysts at research firm Citrini on Sunday. The original post on X has been viewed nearly 10 million times.
This followed the nearly 5,000-word piece “Something Big Is Happening” by Matt Shumer, CEO and co-founder of AI firm Otherside AI, published on February 9. His post on X the following day has been viewed 85 million times.
To be sure, these posts only sketch out scenarios. They are not forecasts or predictions, and they are not backed by hard data.
Why then are they having such a deep impact on market psychology and investor behavior?
Perhaps it’s because they tap into the deepest fears of members of the asset-owning class: financial analysts, business managers, and those in legal, banking, accounting and other white-collar professions potentially in the AI firing line. An echo chamber can get very noisy, very quickly.
The fears are not baseless. The power of AI and the speed at which it is developing are breathtaking. The prospect of millions of people losing their jobs in the next few years is a scary one, whether it’s likely to materialize or not.
There’s another side of the argument. Several articles and posts have been published putting forward “glass-half-full” scenarios where AI spurs a bullish wave of growth, productivity, investment, broad-based wealth creation and stock market gains.
These takes are equally speculative and thought-provoking, but their reach and market impact have been far more limited than the pessimistic forebodings. For example, Quiet Capital Management partner Michael Bloch’s 4,000-word article “The 2028 Global Intelligence Boom,” posted on X on February 22, has been viewed 1.1 million times – impressive, but a fraction of the hits garnered by the doomsday posts, and with little discernible market reaction.
MORE REALISTIC TECH VALUATIONS?
If an “AI doom bubble” is growing, perhaps it’s time to deflate it.
Let’s start with valuations. The steady decline and rotation out of U.S. tech stocks in recent months means that the sector is now trading at almost the same multiples as boring, defensive consumer staples, when comparing 12-month forward price-to-earnings ratios.
Using the same valuation metrics, tech’s premium over the wider S&P 500 index is now the smallest in nearly six years. And on a single-stock basis, retailer Walmart is more expensive than megacaps Apple, Alphabet, Amazon, Microsoft and Nvidia, which reports eagerly anticipated earnings on Wednesday.
These prices indicate that either current AI fears are excessive, or the previous blind optimism was overdone. It’s probably a bit of both.
The reality, of course, is that no one knows how the AI chips will fall. For example, investors yesterday cheered AI lab Anthropic’s announcement of several new plug-ins targeting areas such as investment banking and human resources.
Yet announcements from the same company only a few weeks ago helped deepen the rout in software stocks and tech more broadly. True, the latest Anthropic news spoke of partnerships rather than displacement, but the divergent reactions are notable nonetheless.
Amid the noise, we do have some actual data about AI’s current impact on employment. One analysis of the observable evidence was published on Tuesday by Dallas Fed economist J. Scott Davis. He finds that, so far, AI is simultaneously aiding and replacing workers.
While young workers entering the job market will face “challenging” conditions, “there appears to be less cause for concern about widespread job displacement for older, experienced workers, particularly those in occupations with high experience premiums in which AI is likely to complement the worker’s tacit knowledge,” he writes.
This more sober, data-based, and balanced analysis won’t get millions of views. But it’s a timely reminder that fear can sometimes obscure what’s actually happening in front of us.
(The opinions expressed here are those of Jamie McGeever, a columnist for Reuters)
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(By Jamie McGeever; Editing by Marguerita Choy)
