As the ongoing artificial intelligence(AI)-powered stock market rally continues, proponents of the technology suggest that it could act as a safeguard against the recession predicted by forecasters.
Economist David Rosenberg, president of Rosenberg Research, counters this optimism, asserting that AI’s impact won’t be significant enough to alter the trajectory of the business cycle and prevent a downturn.
Rosenberg clarifies that, despite the potency of the AI theme, it lacks the capacity to prevent an economic recession, particularly as the business sector experiences an extensive refinancing cycle with interest rates anticipated to be 300 basis points higher than the original borrowing costs.
In simple terms, AI is incapable of mitigating the shock that will affect U.S. companies relying on debt financing with substantially elevated interest rates.
While the transformative technology may lead to a sustained surge in productivity through substantial capital investment and investor enthusiasm, Rosenberg notes that similar advancements in the past failed to reshape the dynamics of the business cycle, as history has proven.
Drawing on examples from the late 1960s and early 1970s, when companies like American Micro Devices, Intel, and IBM initiated a computing boom that significantly boosted productivity, Rosenberg highlights that the economy still faced two recessions separated by three years.
Even the bursting of the late 1990s tech bubble, promising transformative power through the early internet, resulted in a hard landing for markets and the economy, challenging the notion that technological advancements alone can shield against economic downturns.
Rosenberg adds a perspective by noting that despite technology commanding a 30% share of the S&P 500 market cap, its GDP share in the sector is significantly lower at 7%, emphasizing that the stock market does not entirely mirror the economy.
According to BI.
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