June 29, 2025 | The Huge AI Story May Not Be Quite Huge Enough

The S&Ps and Nasdaq hit record highs last week, a surreal milestone that only the Wall Street toadies at Bloomberg and the Wall Street Journal who fabricate the news could take seriously.  These are the same folks who bestowed the name ‘Magnificent Seven’ on a bunch of high-flying stocks whose short-squeeze histrionics qualify them for membership in a stock-market Hall of Shame. Portfolio managers, who surely know better, are go-along buyers at these heights and will remain so until a tsunami of redemptions bends them to the impending reality of deflationary write-downs in virtually all asset classes.

That reality darkened last week with news that the U.S. economy shrunk at an annualized rate of 0.5 percent in the first quarter.  Perennially giddy investors would seem to be betting either that the recession that probably already has begun will be short, or that the statistic itself is a meaningless outlier caused by the world-class uncertainties of Trump’s tariff policies.

A popular explanation for the staying power of the bull market against a backdrop of global storm clouds, geopolitical mayhem and economic sclerosis is that AI will save us from…everything. As the story has it, artificial intelligence will boost worker productivity, improve outcomes from brain surgery, make steering wheels obsolete, turn $20-an-hour paralegals into Clarence Darrows, and lay to rest the arguments of Talmudic scholars. In unfortunate reality, the driving force behind AI is its ability to put people out of work, particularly white-collar employees whose jobs have been untouched so far by robotics.

Can Joe Six-pack Deliver?

That raises the question of how lunatic-sector companies that have invested trillions of dollars in AI development, and who say they plan to invest much, much more, can ever hope to recoup their money, let alone multiply it voluminously as they seem to expect. To state the question another way, what additional goods and services can they possibly sell us to generate untold trillions of dollars in new revenues? Since houses and cars have gone out of reach for the broad middle class, and because AI will put enough people out of work to make the affordability problem even broader and deeper, you have to wonder how we consumers will be able to satisfy the insatiable greed of Mark Zuckerberg, Bill Gates, Sam Altman, Reed Hastings, Jeff Bezos, Larry Page et al. The GDP pie is only so big, and if cutting into Taylor Swift’s share of it is part of their plan, they are in for the fight of their lives.

One could argue that healthcare is the most significant area of the economy where job cuts are unnecessary for AI to create value. Indeed, if AI provides an economical way to construct robust hearts, lungs and pancreas with a 3-D printer, or leads us to a cure for cancer, the economic benefits would be enormous. But they would come mostly in the form of savings, rather than from any vast new sales by providers.  Unfortunately for the megacapitalists, any savings, no matter how large, would not remotely suffice to reward the lot of them together with a sustainable growth-stock multiple.  But unsustainable growth that need only be imagined?  We’ve got a cosmic surfeit of that now, so enjoy it while it lasts. [AI hubris was the focus of my recent interview with Howe Street’s Jim Goddard. Click here to access it.]

Rick Ackerman June 29th, 2025

Posted In: Rick's Picks

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