The era of Artificial Intelligence is here, and boy are people freaking out. AI is the application of mathematics and software code to teach computers how to understand, synthesize, and generate knowledge in ways similar to how people do it. AI is a computer program like any other – it runs, takes input, processes, and generates output… It is owned by people and controlled by people, like any other technology. AI isn’t killer software and robots that will spring to life and decide to murder the human race or otherwise ruin everything, like you see in the movies.
– Marc Andreessen
Several factors contribute to the economy’s strength and the solid foundation of businesses. However, the most crucial aspect, as we consistently emphasize to clients of Rebalance, is that stock prices in the long run align with corporate earnings. Encouragingly, despite numerous concerns, earnings of public companies are expected
to grow this year and beyond.
Nevertheless, what holds the utmost significance, surpassing all other concerns, is the emergence of artificial intelligence (AI). Investors recognize that it possesses the potential to revolutionize the world, much like the printing press, electricity, the jet engine, and the internet did in their time. The recent launch of ChatGPT in late 2022, along with a remarkable earnings report from NVIDIA, a leading provider of AI chips, has captured everyone’s attention. The unmistakable realization of AI’s transformative power has taken hold.
Humans Doing More
AI has the power to enhance productivity for both businesses and consumers. It can replace humans in certain tasks while empowering them in others. To truly understand its potential, visit “chat.openai.com,” sign up, and experience ChatGPT for free. Just like talking to a person, the program will answer questions and complete tasks. ChatGPT works as a knowledgeable assistant that is available to provide instant, high-quality answers. It eliminates the need for intermediate research steps and can compose emails, summarize texts, write code, assist in language learning, evaluate papers, create recipes, plan trips, offer movie recommendations, and even play games.
When AI is incorporated into production and services, we achieve more with fewer resources, leading to increased productivity and lower prices. This boosts the economy, creates new jobs, and improves efficiency, resulting in higher wages for workers. Technology continuously improves our lives and opens up more opportunities. It is an ongoing cycle of progress driven by society’s constant desire for more. So, do not worry, technology is not taking away jobs—it’s actually enhancing our lives and expanding our choices.
Investment in Artificial Intelligence
If you are curious about whether your Rebalance portfolio includes investments in AI, the answer is a definite “yes,” unless you have a bond-only portfolio. All Rebalance portfolios, except the income-only portfolios, include a total U.S. stock market fund that holds shares of large public companies at the forefront of AI development. Below is a table listing the top five positions in these ETFs by size, along with their current or potential status as beneficiaries of AI-related revenues.
The impact of AI on markets was primarily driven by fundamental factors, with companies incorporating AI content experiencing heightened attention. In particular, NVIDIA, as the provider of semiconductors for any firm wishing to build businesses around AI, recorded substantial sales growth. With NVIDIA influencing S&P 500 earnings positively, some investing experts have asserted that AI played a crucial role in salvaging the stock market in 2023. Amazon recently announced that it will begin testing its bipedal robot, Digit, for use in operations.
The performance of Apple, Amazon, Meta, Microsoft, Google, Tesla, and NVIDIA, now called the Magnificent 7 (“Mag-7”), comprising trends such as AI, cloud computing, online retailing, and electric vehicle sales, significantly diverged from the remaining components of the S&P 500. This divergence was not only apparent in their price performance, but also in their fundamentals, with sales and earnings growth far exceeding those of the remaining 493 companies in the index. The market capitalization of the Mag-7 now exceeds that of the U.K., France, China, and Japan combined!
Additional noteworthy stock market developments in 2023 included the failures of Silicon Valley Bank and Signature Bank, prompting a subsequent bailout of account holders by the FDIC. Money market fund yields approached 5%, and U.S. GDP growth demonstrated exceptional resilience, driven by sustained consumer spending.
Embracing Innovation
Despite some doomsday predictions about AI, we at Rebalance hold a contrasting perspective. Throughout history, significant advancements like the railroads in the late 1800s, personal computers in the 1980s, and the internet in the 1990s have not only led to overall improvements in productivity but also have given rise to new companies that have become household names, such as Apple, Microsoft, and Amazon. These companies started small and have now grown to become giants in the global market.
As investors navigate the future, we at Rebalance eagerly anticipate the development and integration of AI into our daily lives. It will be fascinating to witness the impact it has on the economy, markets, and all of our portfolios. Rather than heralding the end of the world, we believe AI has the potential to bring forth remarkable advancements and opportunities. Just as previous transformative technologies have shaped our world for the better, we look forward to seeing how AI will contribute to continued progress and prosperity.
