Torsten Slok, chief economist at Apollo:
Despite massive investments and widespread hype around artificial intelligence, the technology has delivered zero financial payoff to corporate America outside of tech. Revenue per worker is rising for the Mag 7 but is flat for the S&P 493, see the first chart below. Profit margins are rising for the Mag 7 but are flat for the S&P 493, see the second chart below. And there are still no signs of AI boosting productivity growth, see the third chart below. With no impact on the bottom line, mainstream corporate America is pulling back and starting to view token spending not as a source of growth but as a cost center that weighs on margins.
Wow. That’s bearish.
And it’s not the first time in the last year people have questioned the AI buildout’s promised ROIs.
What is Apollo? Apollo is among the world’s largest alternative asset managers, managing over a trillion dollars in wealth. A bearish take from the chief economist of a money manager like that means something.
There’s no doubt that AI is the most transformative technology of this century, and possibly ever. It has changed my life as a developer and has become an irreplaceable utility in day-to-day life. But that does not automatically mean the AI buildout is being funded in a sane way. Or that the silly circularity of revenues reported by some of the world’s largest companies isn’t going to bring the financial system down like a house of cards when the lenders have had enough.
I don’t doubt that eventually AI will transform the S&P 493 as well in very real ways. And the Fortune 5,000,000 — it already is. But the hype around it today is such that so many people think that’s going to happen by 2030. And there’s a hella lot of money riding on that bet.
Earlier this month, 10-year Treasury yields hit 5.342%. That’s the highest since 2002.
What that means in simple terms: borrowing is getting more expensive for everyone. The AI buildout runs on some of the largest loans in history.
I’ve been reading A Fabulous Debt by Robin Wigglesworth, and just 100 pages in, one thing has become clear: history shows us time and time again that markets eventually punish insanity and foolhardiness. A few big names go bankrupt, like Jay Cooke, but the consequences are felt most by the public who are left holding the bag. Real, hard-working folks.