From Al Root at Barron's, February 24:
Key Points
- Fears of AI’s economic impact, fueled by a Citrini Research essay, led to significant stock drops.
- GE Vernova, a power technology producer, bucked market trends, benefiting from rising electricity demand for AI data centers.
- High valuations, like GE Vernova’s 56 times expected earnings, present risks, and AI’s long-term economic impact remains uncertain.
Even the most fearful people on Wall Street still see stocks that offer shelter as worry about artificial intelligence sends large chunks of the market tumbling.
Monday was a tough day for the stock market. IBM dropped 13%, while Uber Technologies and DoorDash shares fell 4% and 7%, respectively.
The State Street SPDR S&P Software & Services ETF fell 5% and the Global X FinTech ETF fell 4%. Those losses left those two ETFs down 23% and 27%, respectively, over the past 12 months.
One factor hitting the stocks on Monday was an essay from Citrini Research, published on Sunday, that imagines a future in which AI devastates the economy. It reads a little like the outline of a dystopian science-fiction novel in which AI comes for everyone’s job.
No knowledge-based industry is spared. Debt that might go unpaid by software or financial technology companies brings on a financial crisis like the one the world struggled through in 2008 and 2009.
The prospect of high economic growth via AI productivity gains, along with high unemployment, isn’t exactly a new idea. Anthropic CEO Darrio Amodei has warned about it in the past, and it was concern about an Anthropic product that sent IBM down on Monday.
Still, the essay seems to have captured Wall Street’s imagination, touching on investors’ fear about the effects of AI. Most of the many stocks it mentioned tanked on Monday.
GE Vernova was an exception. As a producer of power technology, Vernova is in position to help meet the rising demand for electricity linked to power-hungry AI data centers.
“The equity market still cared less about [jobs data] than it did the news that all of GE Vernova’s turbine capacity was now sold out until 2040,” reads the essay. Its stock “ambled sideways in a tug of war between negative macro news [and] positive AI infrastructure headlines.”
AI needs hardware to function, which is why GE Vernova shares didn’t drop with the rest of the market.
GE Vernova isn’t the only hardware stock that benefits from the AI buildout. There are dozens that make everything from chips to chip-making machines to servers to connectivity equipment. The list includes Nvidia, Taiwan Semiconductor Manufacturing, ASML, Eaton, Vertiv, Amphenol, and TE Connectivity....
....MUCH MORE
That 'key points' intro is reminiscent of another analyst, Jim Morrison:
The future's uncertain and the end is always near.
Mr. Morrison's response was to have a beer.
Mine will be to point out that GEV is up $42.88 (+5.16%) at $874.58.
And just for grins and giggles, PWR is up $15.48 (+2.82%) to $564.59.