Writing a fifth blog on GenAI pessimists reveals the obvious: the field has a multitude of naysayers from various fields, each ready to pounce on any stumble. The stock market, like during the ongoing correction and on account of the rich valuations of AI stocks, will provide repeated opportunities and ample ammunition for them to voice their doomsday prophecies to those looking for reasons to describe the market events.
These stocks, outperforming traditional market darlings, are the highest beta: they will be the first ones to come under pressure whenever there are any direct disappointments, but also other economic, political, or general factors causing market falls. Earnings growth is equally crucial. Any cyclical slowdown or negative news from major players could lead to severe corrections. In the best case, the GenAI/innovation stories are long-term, and as a result, material public market drawdowns in the interim are the risks optimists will have to bear without too many recourses.
Moving beyond the stock moves will be critical at such times, particularly when the drawdowns are long and painful. GenAI’s promise lies in its transformative potential for society and the world. However, this potential hinges on two key factors: continuous innovation and tangible earnings growth.
Innovation must extend beyond chatbots and co-pilots, as showcased on www.geninnov.ai, with new use cases emerging across diverse fields. A slowdown in innovation could trigger a sustainable market correction, fueling doubts and amplifying the voices of pessimists. Innovations can no longer be more LLM releases, as better transformer models or more improvements in features already announced are hardly going to cause any excitement from now on.
Over the long term, it is almost given that generative AI will provide multiple new products and services to growth companies over the next few years. These will happen in driverless cars, eVTOLs, robotics, medical and healthcare services, and material sciences. These promises must result in actual new product and services announcements with visible revenue/earnings acceleration to keep the Cassandras at bay. Any long gaps will hurt.
Innovation will lead to many disruptors growing at sharper rates compared to those disrupted. In this widening corporate inequality, the market will behave in a bifurcated way, as seen over the last few quarters. The list of winners may keep changing, but the narrowness of the market, where many are disrupted versus few disruptors, could be a feature for the coming years. This won’t make many traditional market participants happy, but it is a likely outcome.
None of this is certain. What is certain is that GenAI, while promising, will face many cyclical winters both fundamentally and in stock markets. For the optimists, the important announcements are in new capabilities, products, and services – and so far, there have been only positive surprises for over two years.
