Wednesday, 31 May 2023

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How the A.I. explosion could save the market and maybe the economy

How the A.I. explosion could save the market and maybe the economy

A Nvidia logo is seen on the company’s building at an industry park in Tianjin, China, February 7, 2019.

VCG | Visual China Group | Getty Images

A blockbuster profit report Wednesday 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.

Nvidia’s massive fiscal first-quarter earnings helped quantify the phenomenon as the firm nears an elite cast of tech leaders with $1 trillion market valuations and clear leadership status both on Wall Street and in Silicon Valley.

“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 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.

Isolated effects so far

For Nvidia, the upside already has been apparent.

As if profit of $1.09 a share on revenue of $7.19 billion, both well above Wall Street estimates, wasn’t enough, the company guided it was expecting $11 billion in sales for the current quarter, largely driven by its leadership position in the AI chip-supplying business.

Shares soared more than 26% higher around midday Thursday and the company’s market value surpassed $950 billion.

Broader market reaction, however, was underwhelming.

While the S&P 500 semiconductor index jumped 11.4%, the broader Nasdaq Composite rose a more muted 1.7%. The S&P 500 was up about 0.9%, while the Dow Jones Industrial Average slipped more than 50 points as investors continued to fret over the debt ceiling negotiations in…

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