Experiences with OpenAI, Bing, or WhatsApp show that robots, for now, get confused and are not as powerful as once believed.
The rise of Artificial Intelligence may be gradually waning: an executive from the U.S. financial multinational highlighted the slowdown in stock market investments tied to chatbot-related companies.
The AI boom that has driven the S&P 500 index to historic highs this year is fading, and the stock market needs a new catalyst if it hopes to resume its rally, according to Mike Wilson from Morgan Stanley.
While AI may eventually transform productivity, investors who bet on equities due to its short-term potential did so prematurely, said the bank’s chief U.S. equity strategist in an interview with Bloomberg Television.
The same phenomenon is now being observed in chip stocks, not just in the recent fluctuations of Nvidia Corp. The Philadelphia Semiconductor Index has dropped 8.5% this month.
Is artificial intelligence heading towards obsolescence? “The dream of artificial intelligence has lost a bit of its shine,” Wilson said. “That doesn’t mean it’s over.”
Investors have been reducing their exposure to big tech after accumulating them for much of the year. With the Federal Reserve expected to begin cutting interest rates next week, investors are shifting their positions to other sectors of the market while assessing the health of the U.S. economy.
Wilson reiterated his preference for quality defensive stocks and recommended areas like utilities, consumer staples, and healthcare, as enthusiasm around chip manufacturers fades, at least temporarily. It’s likely that investors will take refuge in these sectors until “what’s next” arrives—whether it be a negative or positive outcome, he said.
U.S. stocks fell on Tuesday morning after a key inflation measure rose more than expected in August, raising concerns that the Fed may not cut rates as much as traders hope. The core consumer price index—which excludes food and energy costs—increased by 0.3% from July and 3.2% from a year earlier.
The strategist warned that advancing rate cuts with a 50-basis-point reduction at this meeting “materially” reduces the chances of a soft landing. Some traders had speculated on the possibility of policymakers making a large-scale cut early on, but after the CPI increase, they have largely backed down and consolidated the odds of a quarter-point cut.
In Wilson’s view, the biggest uncertainty at next week’s monetary policy meeting is whether Fed bankers will more strongly suggest ending quantitative tightening soon or offer other provisions to provide liquidity. That could surprise the markets and serve as a “bullish argument” for stocks, he said.
In early July, Wilson correctly warned that the market would face a significant downturn due to increased uncertainty around Fed policy, corporate earnings, and U.S. elections. Less than a month later, the S&P 500 fell 8.5% from its peak to its August low. However, the strategist also predicted a stock market decline last year that did not materialize.
Looking ahead to the elections, Wilson believes that in a soft landing scenario, the growth policies of former President Donald Trump would likely be good for stocks and bad for bonds.