✨ An AI bubble? Why I don't care

Big tech innovations usually cause market froth. But their long-term productivity impact is far more important

Super-Short Summary: While AI-related stocks probably aren't currently in a bubble, historical patterns suggest speculative bubbles often accompany major technological innovations, according to Goldman Sachs. (Some great charts.) So relax. Recent studies indicate AI's significant potential to boost productivity across various sectors, particularly benefiting less experienced workers. Experiments show AI tools improving software developer productivity by 26 percent and translation tasks by 33 percent. Even if AI development stopped now, its current capabilities would drive rapid changes for 5–10 years. Recent labor productivity data shows strong growth, which may require AI to sustain in the future, however.

This isn’t a financial newsletter, although investors might find it insightful. So I don’t much care if Wall Street considers shares of artificial intelligence-related companies to be in a bubble or not. At least I don’t care about the trading implications. 

That said, if generative AI really is a big-deal technological innovation — what economists call a general-purpose technology — it would be … odd if AI stocks didn’t get a bit bubbly at some point. In a new global strategy paper, “AI: To buy, or not to buy, that is the question,” Goldman Sachs analysts point to research that finds in “a sample of 51 major tech innovations introduced between 1825 and 2000, bubbles in equity prices were evident in 73% of cases.”