Stock markets around the world are progressing fast. In recent weeks, market indices in America, Europe, and Japan have surged to new record highs. Most of it comes along with spectacular results from Nvidia, which is adding fuel to the fire with its AI.
However, one of the key questions we have is how high can the markets go. In the short term, the markets are supported by a rather strong global economy, which is producing healthy results across a range of industries—not just in firms connected with AI. However, the longer-term picture is slightly different and there are fewer elements for being so optimistic.
There are several elections this year (USA, UK, India, among others) of which the outcome is unclear. But the political aspects of markets are just one side of the coin. There is the reverse side of the high market valuation – every time a start-up, with an unconfirmed business model, comes into the market with potential disruption, the market value of the concerned companies, which may have exercised for years and acquired a loyal customer base, is being slashed by a quarter, half, or even more.
AI is an emerging opportunity and risk component for market valuation. It can be both positive and negative, depending upon a company’s use case, governance, risk management, sector, regulatory oversight, and competitive environment. More importantly, consumer confidence around AI was never tested in full and for day-to-day business, The AI application available so far looks at a fraction of a business line which indicates that the broad market environment will remain unchallenged. In particular, this applies to FMCG and retail companies which will remain highly sensible to consumer satisfaction.
We are not against AI, but the hype around AI and what it can provide as of now, has gone probably a little too far. For now, NVDA and some others, are the enablers that have developed a concept of how business could look like with AI. But in the future, the beneficiaries of these technologies have to provide evidence that AI is doing the trick at business. Remember, Apple pulled out of the EV self-driven car project on which it had been working for nearly a decade.
Message to be retained: you want it to be safe for consumers, a lot needs to be done and in the case of AI, no company is anywhere close to it.