21st Century Bicycle

by Krystal Daibes Higgins, CFA
Vice President Equity Research

In a 1981 interview, a skeptical Ted Koeppel questioned 26-year-old Steve Jobs about the dangers of using computers and whether they would eventually be able to control humans (aside from current social media addiction, not yet). Jobs proceeded to explain that the personal computer is the “bicycle of the 21st century” and referred to a study that measured the locomotion efficiency of various species.

 “It turned out that the Condor took the least amount of energy to get from point A to B, and man sort of came in with a rather unimpressive showing, coming in about a third of the way down the list … but a man riding a bicycle was twice as good as the Condor. It really illustrated man’s ability to fashion a tool to amplify an inherent ability that he has. We’re at the mechanical part of intelligence, where these devices can free a person from many of the drudgeries of life and allow humans to do what they do best—which is to work on the conceptual and creative level.”1

 Koeppel wasn’t alone in his wary attitude toward computers. In fact, throughout the course of history, almost all major technological revolutions triggered fears of machines taking over employment and ultimately, the human race (movies such as the “Terminator” did not help to ease fears). Indeed, when we look back over the last century, society and leaders were nervous about the inventions of machines in the 1920s, automation in the 1950s, computer chips in the 1970s and personal computers in the 1980s.

 We now once again are seeing some hesitation, as well as some excitement, about the advancement of artificial intelligence (AI)—thanks to the recent launch of the Microsoft-backed ChatGPT, a new tool that produces human-like responses. For example, it can help edit a person’s resume or produce content ideas for marketers. This invention is the latest evolution of AI, which previously only had the capabilities to process and analyze data (e.g., Google searches and personalized Netflix recommendations).

 If we can learn something from history, it is that we should embrace technological advancement that can improve productivity and quality of life. Additionally, job loss from transformative technologies in the past has been offset by the emergence of new innovations and businesses, which then led to new job creation. Just look at how tight the job market is today after all the technological megatrends of the last century that were supposedly going to cause mass unemployment. From an investment perspective, it is another major opportunity to build long-term shareholder value.

 Adapt or Die

 Often, you’ll hear investors talk about “market efficiency”— a term used to describe how businesses’ near-term fundamentals are already priced into a company’s stock or the capital market. However, the further we move out in time, the less efficient the market becomes and the more undiscovered value an investor can find. We believe this is currently true for the AI opportunity. However, forecasting megatrends is extremely difficult on many levels, and as a result, we believe little AI value has been priced into stock valuations. What is understood is that businesses that adopt and/or adapt are likely to widen their competitive moats and beat out their slower peers over time. This is particularly true for semiconductor and software companies.

 Not only can the latest evolution of AI be potentially transformative to the technology industry, but we will likely see competitive advantages emerge for businesses across all sectors, industries and sizes. From software applications to media advertising to supply chain management and more, those that can identify internal efficiencies and improve productivity should be better positioned to capitalize on profit growth opportunities over the long term.

(Note: this blog was written by an actual human)

 Market Performance Year-to-Date

We closed out the first quarter on a high note as the S&P 500 Index rallied more than 3% last week. Although it wasn’t a smooth ride (thanks to the banks), patient investors gained more than 5% back in the first quarter of 2023. This positive return was largely driven by investors’ expectations of no more rate hikes, as the inflation rate hopefully continues to abate. This week, we received more not-so-terrible bad news (that is actually viewed as good news for the capital markets) of job openings falling below 10 million—the lowest it's been in two years. We continue to anticipate a choppy trading environment as the market plays tug-of-war between corporate profit growth, valuations, recession fears and looking further out to smoother days.

Takeaways for the Week:

  • Revolutionary technologies have historically created anxiety and fears that humans may be replaced. Instead, advancements have replaced monotonous, arduous and/or inefficient human tasks and have created more jobs over the long term

  • Businesses that seek ways to incorporate AI to boost productivity and improve growth prospects are likely to beat out slower moving competitors

  • As measured by the S&P 500, stocks moved higher this quarter as investors anticipate no more rate hikes and recovering profit growth in the back half of 2023

Source:

1.       https://allaboutstevejobs.com/verbatim/interviews/abc_nightline_1981

Disclosures