Bull & Baird: AI Narratives
Come back with me to the spring of 2020. We were right in the middle of a pandemic, stacking toilet paper to the ceiling and wondering what the future held. We were on endless Zoom calls while ordering our TVs and food for pickup in a parking lot. The narrative was “we are never going back to the way things were.”
And because humans love a good story – we bought into it. Narratives rule how we interpret the world around us, and nowhere is that more evident than the stock market.
In 2020, stocks were so convinced that we would never go back to in-person meetings that the market cap of Zoom surpassed that of Exxon Mobil. Airlines and hotels fell because no one would see their customers again. Peloton was worth $50B because gyms were dead. “Stay at home” stocks soared while “real world” stocks plummeted. We extrapolated the moment far into the future.
Well, we all know what happened next. It turns out people want to see their customers and eat in restaurants. We want to shop in stores and stay in hotels. Gyms are important to the way we hone our bodies. Our idea of what the future held was wrong.
The stock market is very susceptible to narratives because its whole job is thinking about what might happen and assigning a price to it. When a particularly powerful story shows up, it latches onto it like Punch to his stuffed monkey.
AI is a world-changing invention. We are going to enter an era where human beings are no longer the smartest thing on the planet. What does that mean for the economy? For jobs? For the future? All great questions that currently dominate our day-to-day lives.
Some have speculated that it will destroy white collar work, in turn doing irreparable harm to the economy. We’ll need less lawyers and bankers and consultants as AI agents do their work at a fraction of the cost.
Others have postulated that AI will usher in a productivity boom that will help offset population decline. Narratives are all over the place.
But here’s the truth: no one knows what’s going to happen.
What I do know is this: the market is ripe for confusion as it stumbles around trying to figure out what impact AI might have. Like the spring of 2020 we are jumping to conclusions that may not make sense.
AI will not take every white-collar job, but it will take some. AI will not replace financial advisors, lawyers, and bankers but it will change the way they work. AI is not going to kill Bloomberg, Workday, and Salesforce but it will challenge them to provide better value for their customers.
One of the most powerful lessons from 2020 is that human beings crave connections and human contact in their lives. I can’t envision a world where someone pulls up their AI chat bot and asks it what to do after their spouse died or how to manage their financial future after they sold a business. No one is going to ask Chat GPT what to do when a spot shows up on their X ray. No multi million-dollar lawsuit is going to be filed based on what Claude came up with.
We are grappling with pessimistic narratives around AI because fear of the future is our default state. But if there’s anything I’ve learned in my 52 years of life it’s this: the future has always been brighter than we thought and those that embrace an optimistic view of it are the real winners.
AI is powerful. The narrative around it might be even more so. The key is remembering that narratives evolve, reality intervenes, and human connection endures.
The information reflected in this post is an opinion and subject to change. Past performance is not a guarantee of future results.Diversification does not ensure profitor protect against loss. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances. Speak to your Baird Financial Advisor before making investment decisions.
