AI adoption boosts markets, but investors wary of risks

The rapid adoption of generative artificial intelligence (AI) has boosted markets this year, but after the initial euphoria, investors are waking up to the possible risks, including the need to be highly selective in stock-picking.

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According to estimates, the rapid adoption of generative AI on the markets could add $7.3 trillion to the world economy yearly and automate half of today’s work activities between 2030 and 2060. While this could be a major boost to the markets, it could also have a deflationary effect and reduce sales growth, leading to stock underperformance. Companies that are already facing strong competition or where growth depends on headcount are particularly vulnerable. Additionally, clients could use AI to negotiate price cuts, further exacerbating the issue. 

The analysis also reveals that 29% of global investors don’t expect AI to increase profits or jobs, while 40% are more optimistic about its potential. Despite these potential benefits, shares in some companies have lost 30% of their value this year, creating an exaggerated concern over earnings growth. 

As a result, investors have become more cautious and selective in stock picking. Corporations should also invest in AI to realise its potential and minimise disruption to their market share. Overall, AI has both positive and negative impacts on the markets, and investors should be aware of both before making decisions.