For those looking for a big signal of the rapid impact that artificial intelligence is going to have on the market, the 25%-plus gain in shares of Nvidia and its flirting with a $1 trillion market cap on Thursday after its earnings were buoyed by AI chip sales provided it. But less certain is what Nvidia’s gain means for the tech startup economy.
The blockbuster profit report from Nvidia crystallized an important point for both markets and the economy: For better or worse, artificial intelligence is the future.
Whether it’s personalized shopping, self-driving cars or a broad array of robotics uses for health care, gaming and finance, AI will become a factor in virtually everyone’s lives.
“AI is real, AI is not a fad and we’re only in the early innings,” said Steve Blitz, chief U.S. economist at TS Lombard. “Does it change the course of the economy over the next three to six months? Probably not. Does it change the economy over the course of the next three to six years? Absolutely, and in very interesting ways.”
Some of the changes Blitz foresees are reduced demand for foreign labor, a “point of sale” effect where coding and creative writing can be done by machines instead of people and a host of other activities that go beyond what appears obvious now.
Development of products such as this year’s top Disruptor 50 company OpenAI’s ChatGPT, a chatbot that converses with the user, has helped bring home the potential.
“It’s hard for me to overstate the value or the impact of AI, and it is in keeping with my view that this coming decade is all about the broader application of technology beyond what we’ve seen to date, beyond computers and phones, and that application has tremendous upside,” Blitz said.
At the same time, worries of an economic slowdown persisted — despite his excitement over AI, Blitz still thinks the U.S. is headed for recession — and the lopsided market reaction served as a reminder of a stratified economy in which technological benefits tend to spread slowly.
At the inaugural CNBC CEO Council Summit in Santa Barbara, California, this week, CEOs from across the economy spoke about the impact AI and machine learning have had on their businesses already, and which will accelerate. Venture capitalist Jim Breyer had said even before the earnings were out that Nvidia looks “unstoppable” over the next three years.
But the massive sale of chips to cloud and consumer internet giants doesn’t mean CEOs in other sectors are about to deploy billions of dollars immediately in the race. With the latest generative AI, Goldman is working through lots of use cases and experiments, but “you want to go slow and be targeted and thoughtful and learn,” Goldman Sachs CEO David Solomon said.
AI hasn’t been a winner for everyone, either.
DataTrek Research looked at nine big AI-related companies that came to market through initial public offerings over the past three years and found their collective valuation is down 74% from their debut levels.
The group includes UiPath (a 2020 Disruptor 50 company), as well as Pagaya Technologies and Exscientia. Their stocks have rallied in 2023, up an average of 41%, but the seven largest tech companies, a group that includes Nvidia, have surged an average 58%.
“So far, Big Tech has collectively benefited most from the buzz around gen AI. We think this trend will continue given their ability to leverage their global scale and large competitive moats when utilizing this disruptive technology,” DataTrek co-founder Nicholas Colas wrote. “Gen AI may end up making US Big Tech even bigger and more systematically important, rather than allowing upstarts to play the classic role of disruptive innovators.”
Reporting by CNBC’s Jeff Cox
