news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

A recent report by Jim Covello, head of global equity research at Goldman Sachs, poured cold water on artificial intelligence (AI), the main driver of this year's U.S. stock market rally.

Covello, who has worked on Wall Street for more than three decades, knows how painful it can be to bet against the ever-expanding tech bubble. The market has a way of making fortunes month after month, even when the latest technological breakthroughs clearly fall short of expectations. Covello believes the same may be true for AI, so it’s dangerous, even foolish, to start betting against the likes of Nvidia.

Covello believes that it may not be this year, or even next year, but one day, the bursting of the Aides bubble will come. In his view, the hundreds of billions of dollars spent by companies in the field of AI will not set off the next economic revolution, and will not even match the benefits of smartphones and the Internet. When this becomes clear, all the stocks that have soared on the prospects of AI will also fall.

Covello noted in the report:

“Most technological transitions throughout history, especially those that were transformative, were about replacing very expensive solutions with very cheap ones. The possibility of replacing jobs with very expensive technology is basically the exact opposite of that.”
“What trillion-dollar problem will AI solve? Replacing low-wage jobs with expensive technology, which is the exact opposite of every other technology transformation I’ve witnessed in my three decades of closely following the tech industry.”

To justify its high cost, AI “has to be able to solve complex problems, which is not what it was designed for,” Covello said. AI technology is expensive, and even replacing humans with machine learning won’t reduce costs.

“We found that AI could update the historical data in our company’s models faster than (humans) could manually update them at six times the cost,” Covello wrote in his report. He also said that costs would have to fall dramatically before AI automation of tasks could be affordable to the general public.

AI advocates argue that the technology is still in its infancy and that, like the Internet during the dot-com bubble of the 1990s, the cost of AI will eventually fall. But even so, Covello points out that the Internet still has a cost advantage. "Amazon can sell books at a lower cost than Barnes & Noble because it doesn't have to maintain high-cost physical stores."

“The idea that technology usually starts out expensive and then gets cheaper is a revision of history,” Covello said.

Covello is not just worried about the high costs. He just doesn’t expect AI to be the breakthrough technology invention that people expect. So far, there is no “killer app” for AI, and even his more optimistic Goldman Sachs colleagues acknowledged this in the report.

According to the media, the craze for AI concepts has driven the S&P 500 index's market value to surge by nearly $16 trillion since the end of 2022. Now, a small group of market observers led by Covello have questioned the key principles of the AI ​​concept. This principle is that the powerful force of large language models (LLMs) will usher in the next great stage of capitalism, and as more and more work is handed over to intelligent machines, corporate profits will flourish, thereby improving efficiency and accelerating growth.

The problem, say Covello and other skeptics, is that business expectations for AI may be wildly overstated and that a stock market correction could occur if tech giants reconsider their massive investments in the sector.