\u201cAI or die.\u201d<\/p>\n
That was International Monetary Fund Managing Director Kristalina Georgieva last week, \u200btelling a panel at the IMF\/World Bank spring meetings in Washington how she \u200cviews the challenges businesses, industries, and economies around the world face given the transformative powers of artificial intelligence.<\/p>\n
Her comments also apply to the stock market.<\/p>\n
U.S. Big Tech suffered a substantial wobble and repricing in the first quarter, but has roared back in the last three weeks, with market conviction in the AI productivity boom seemingly stronger \u2060than ever.<\/p>\n
Investors will \u200bget a sense of whether this optimism is justified this week, with Tesla, the first of the \u201cMagnificent Seven\u201d megacaps to report, releasing first-quarter results on Wednesday. IBM and Intel also report this week.<\/p>\n
Markets are clearly expecting more good news. U.S. stocks have shrugged off the Iran war and the energy supply shock to hit new all-time highs. The Nasdaq on Friday clocked its 13th daily gain, its longest winning streak since 1992, rising nearly 20 per cent \u200bin the process. Should the rally extend through Monday, it will be the best run since \u200cJune 1987. The S&P 500 is also up 13 per cent in the last three weeks.<\/p>\n
The rebound has been highly unbalanced, however, driven by only a handful of Big Tech firms. Indeed, less than 10 per cent of the S&P 500 stocks are trading at 52-week highs, according to Liz Ann Sonders at Charles Schwab.<\/p>\n
The S&P 500 tech sector is now worth nearly 35 per cent of the overall index\u2019s market cap, closing in on October\u2019s record 36 per cent. The tech and communications services sectors\u2019 combined market cap is now less than a percentage \u200cpoint off October\u2019s \u200brecord 46 per cent market share.<\/p>\n
Concentration risk is suddenly back \u200con the table.<\/p>\n
Any downward shift in sky-high AI sentiment could have an outsized impact on the wider market. And with global energy prices up the most \u200bin five years, there are worries that the hyper-bullish earnings outlook for Big Tech \u2013 \u2060now a highly energy-intensive sector \u2013 could sour.<\/p>\n
While economists at BNP Paribas reckon the AI boost will \u201ccomfortably\u201d overshadow all negative shocks \u2060over the next several years, in the near term – this year and next – negative shocks are likely to carry more weight.<\/p>\n
\u201cIf current (AI) capex pledges are met in full, this could significantly boost \u200bpower prices, diminishing the positive productivity effect from AI deployment,\u201d they wrote last week.<\/p>\n
These capex pledges are huge – some US$635-billion this year from hyperscalers Microsoft, Amazon, Alphabet and Meta alone, and over $800 billion in total, according to Morgan Stanley.<\/p>\n
The numbers on the energy demand side are also eye-popping.<\/p>\n
In November, Morgan Stanley energy analysts estimated total U.S. data center power demand through 2028 at 69 gigawatts, warning of a potential 44 GW shortfall. They now see that demand reaching 80 GW, with the potential shortfall rising to 55 GW. For context, \u206010 gigawatts could power 10 medium-sized nuclear power plants.<\/p>\n
With AI-driven demand for energy going up and supply constrained, the prices Big Tech must bear will undoubtedly be higher than expected. This could eat into the huge profits baked into market expectations for hyperscalers.<\/p>\n
Or, as Melissa Otto, head of research at S&P Global Visible Alpha, told Reuters last month, it could even hinder their capex plans altogether.<\/p>\n
\u201cI think if the capex numbers get pulled back, if in fact energy prices are not reflected in earnings, that could be a catalyst\u201d for an equity market pullback, Otto said.<\/p>\n
However, the energy price spike may ultimately \u2060be a short-term concern that is quickly forgotten as the AI juggernaut rolls on. It\u2019s also possible \u200bthat rising geopolitical tensions could actually benefit Big Tech, as the fracturing of the world order will likely only heat up the AI arms race.<\/p>\n
Moreover, if JPMorgan\u2019s \u2060Nikolaos Panigirtzoglou is right that investors retain a large short position in the benchmark tech \u2018QQQ\u2019 exchange-traded fund (ETF), there is even room for the AI trade to accelerate further in the short term.<\/p>\n
\u201cAI or die\u201d may \u200cvery well be investors\u2019 motto in the coming years, and for good reason. But if energy prices stay higher for longer, this revolution \u2013 and the stock market \u2013 \u200bmay not advance as quickly as expected.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cAI or die.\u201d That was International Monetary Fund Managing Director Kristalina Georgieva last week, \u200btelling a panel at…\n","protected":false},"author":2,"featured_media":616964,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[62,901,276,277,888,902,879,877,903,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-616963","post","type-post","status-publish","format-standard","has-post-thumbnail","category-artificial-intelligence","tag-ai","tag-alberta","tag-artificial-intelligence","tag-artificialintelligence","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/616963","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=616963"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/616963\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/616964"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=616963"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=616963"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=616963"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}