The financial markets have been under siege since the Fed started raising rates over a year ago. During much of that time investor sentiment has been poor with little reason for optimism. As we have previously discussed here, growth stocks are getting beaten up the most with the fear being that their reliance on cheap loans to fuel growth is unsustainable in a rising interest rate environment. Meanwhile, industrial and oil companies have been the darlings even as consumers and countries alike transition toward new technologies and more sustainable energy solutions. But this past December attention was once again turned to tech as Silicon Valley and San Francisco unveiled Chat GPT-3, an artificial intelligence large language model, or LLM. The titans of tech stood up and took notice. We are already familiar with aspects of language models and chat bots. Think of Siri or Google Home. But this one is much more robust and offers far greater computing power. Alphabet (Google’s parent company) sent out an internal memo and held an emergency meeting after the release and Microsoft went a step further and bought a $10 billion chunk of the company behind the new technology.
It remains to be seen what applications will spring forth from this new AI, but anyone who has played with it can see the potential. Tech stocks have broadly rallied on the renewed optimism of AI and hopes that the Fed may be nearing the finish line of their rate hiking campaign. Technological advances often put downward pressure on inflation, which the Fed is currently fighting. But what’s good for consumers might be bad for the incumbent companies. It appears Google might have the most to lose since at its most basic level Chat GPT offers direct answers to questions rather than pointing one to sources that may have the answer (as Google search does). It can also provide these answers in creative ways if you ask for it. For example, I asked it to write me a poem about the basic rules of investing. Here is a portion of what it created:
Here are some basics that’ll help you invest, and make sure you do your best.
First, diversify your assets, don’t put all your eggs in one basket,
spread your investments across different classes, so that losses in one won’t hurt your masses.
The real breakthrough is that this tool can do work. The above is an example of it working to make a simple poem, but it can work to organize your spreadsheets, do very complex math problems, write essays, and even code. The productivity increases in some industries could be staggering. What used to take teams of computer scientists dozens of hours can now be done in minutes. The major breakthrough applications probably have not even been thought of yet. Just as the invention of GPS (completed in 1995) would lead to the creation of Uber and dismantle the taxi industry some 20 years later.
As the saying goes, “there is no free lunch,” so enhancements in one area will likely cause destruction in other areas. Whichever jobs are made obsolete, it is my hope that new and better opportunities will arise to fill those spaces. In a time of high inflation and the uncertainty of war, a new technology that is fun to use and will drive down costs is most welcome.