Source: Wall Street See
Jim Covello believes that the economic benefits brought by AI are not even comparable to those of smart phones and the internet; AI replaces low-paying jobs with expensive technology, which is completely opposite to the technological transformation that has occurred in the technology industry in the past thirty years.
Goldman Sachs' global equity research chief, Jim Covello, has recently poured cold water on the concept of artificial intelligence (AI) being the main driving force behind the rise in US stocks this year. As someone who has worked on Wall Street for more than thirty years, Covello knows all too well that shorting the market can be painful when faced with a constantly expanding tech stock bubble. The market always seems to find a way to create wealth that continues month after month, even when the latest technological breakthroughs clearly fall short of expectations. Covello believes that this may also happen in the AI field, so it is dangerous to begin shorting companies like Nvidia, at least for now.
Covello believes that maybe not this year, or even next year, but someday the bursting of the AI bubble will come. As he sees it, companies spending billions in the field of AI will not spark the next economic revolution, or even match the efficiency of smart phones and the internet. When this becomes clear, all stocks that have soared due to the prospects of AI will fall.
In his report, Covello points out that most technological transformations in history, especially those that are transformative, have replaced very expensive solutions with very cheap solutions. Replacing jobs with extremely expensive technology is basically the opposite of the way to go. What value will AI provide that is worth trillions of dollars? Replacing low-paying jobs with expensive technology is completely different from the previous technological transformations that I have witnessed in my thirty years of closely following the technology industry. To justify their high cost, AI “must be able to solve complex problems, and that's not what it was designed for”. The cost of AI technology is very high, and even using machine learning to replace human labor cannot reduce costs.
Covello's report states: "We have found that AI updates historical data in our company's model faster than (human) manual updates, but the cost is six times that of manual updates." He also said that costs must be greatly reduced for the public to afford automation of AI tasks.
"Most technological transformations in history, particularly those that are transformative, replace very expensive solutions with very cheap ones. Replacing jobs with expensive technology is basically the opposite."
"What trillion-dollar problem will AI solve? Replacing low-paying jobs with expensive technology is completely opposite to what I have witnessed in the previous technological transformations that I have tracked in the technology industry for 30 years."
Covello believes that to justify their high cost, AI "must be able to solve complex problems, and that's not what it was designed for." AI technology is very expensive, and even using machine learning to replace human beings cannot reduce costs.
Covello's report states: "We have found that AI updates historical data in our company's model faster than (human) manual updates, but the cost is six times that of manual updates." He also said that costs must be greatly reduced for the public to afford automation of AI tasks.
AI enthusiasts believe that AI technology is still in its early stages, just like the internet during the dot-com bubble of the 1990s, and the cost of AI will eventually decrease. But even so, Covello pointed out that the internet still has a cost advantage. "Amazon can sell books at lower cost than Barnes & Noble because it doesn't have to maintain expensive brick-and-mortar stores." Covello said: "Technology is usually expensive at first, then becomes cheaper, which is a revisionist idea of history."
"Technology transformations in history have often been accomplished by replacing very expensive solutions with very cheap ones. Replacing jobs with extremely expensive technology is basically the opposite of the way to go."
Covello's concern is not just about high cost. He only expects that AI will not become the breakthrough technological invention that people expected. So far, AI has no "killer application", even colleagues at Goldman Sachs who are more optimistic have acknowledged this in their report.
Since the end of 2022, the AI hype has pushed the market cap of the S&P 500 index up nearly 16 trillion US dollars. Now, Covello and a small group of market observers are questioning the key principles of AI. This principle is that the powerful force of large language models (LLMs) will usher in the next great stage of capitalism, as more and more work is handed over to intelligent machines, corporate profits will flourish, thereby improving efficiency and accelerating growth.
Covello and other growing skeptics believe that the problem is that people's commercial expectations of AI technology may be greatly exaggerated, and if tech giants reconsider their huge investments in the AI field, the stock market may experience a correction.
Editor / jayden