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AI HYPE VS. REALITY

One of the benefits of having been around awhile is that you are able to see previous trends and how they played out over time. In the late 90’s, tech stocks got to incredibly lofty levels. As we know, the tech boom had an incredible bust in the early 2000s. However, let’s rewind the tape. As the late 90s ground on and the internet started to become a “thing”, every company was trying to show how they were leveraging their “dot comness” to garner ever loftier valuations.

I often quip that one can take what I know about technology, stuff it in a thimble, and they will have room left over! I may need a new analogy because many people today might not even know what a thimble is! All of that said, many companies in the late 1990s were very focused on displaying their internet savvy as a means of staying relevant and becoming a coveted investment. Stocks such as JDS Uniphase were thought to have the most unlimited upside. Heck, pets.com had an incredible run, until they didn’t. I don’t want to go too far down memory lane, but there was also a crazy cycle around cellular communication companies when they first came to life.

I bring all of this up because I read an article on CNBC’s website on Sunday that discussed expectations for artificial intelligence. In an article entitled “Google CEO: AI development is finally slowing down - ‘the low hanging fruit is gone’” by Megan Sauer, Google CEO Sundar Pichai discussed that after OpenAI and Chat GPT were launched two years ago, the imagination of investors and early AI users were captured[1]. Since that time, the world has been focused on AI, its’ promises, and all of the incredible changes that would come to the world. In numerous cases, companies have started to contemplate the jobs that would disappear because of AI. The article pointed out that Pichai believes AI will not likely revolutionize the world further in 2025 and that further progress from AI is going to be more difficult[1].

I want to array these thoughts relative to a number of articles that I reviewed recently that discussed limits on AI. Essentially, these articles all reached the same conclusion, that AI will be limited because of its’ lack of reasoning ability. For example, simple tax returns will likely be managed by AI in the future as computers will be able to take inputs from basic tax forms and finalize returns. Complex returns that are invested in partnerships or real estate investments that allow depreciation will require judgment calls. Perhaps AI will be able to generate the appropriate choices and oversee the number crunching, but the articles all felt that true reasoning logic is not at hand…yet.

For investors, I think this means that investing in exciting new technology is certainly a way to potentially generate outsize returns. However, trees do not grow to the sky and indiscriminate investors in past cycles can certainly tell tales of how these stocks fared after they peaked!

Just some thoughts as we start the week.

[1] Source: https://www.nbcphiladelphia.com/news/business/money-report/google-ceo-ai-development-is-finally-slowing-down-the-low-hanging-fruit-is-gone/4048372/

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