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We’ve Been Here Before: The Impacts of Today’s Age of AIby@stevemattussigfig
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We’ve Been Here Before: The Impacts of Today’s Age of AI

by Steve MattusApril 26th, 2024
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A look at the impacts of today's AI boom across industries, and particularly in the financial industry, by Steve Mattus, Chief Investment Officer and GM of Digital Wealth at SigFig.
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Accelerated employment. Wage gains. Faster investment, more information and notable gains in productivity. These were all hallmarks of the 1990s, a period that looms large in the memories of those who witnessed this time of innovation and skyrocketing long-term growth.


New technologies, like computers and software, gave rise to a greater reliance and utilization of networking. The internet first flashed its true potential. Information was suddenly accessible and storing it became cheaper and cheaper. The combination of personal computing and the internet catalyzed massive changes to industry, trade, finance and services. The economic sluggishness of the 1970s and 1980s finally folded, as technology prospered, inflation fell and poverty gave way to job gains.


History certainly harmonizes.


In many ways, the 1990s are primed to rhyme with today’s gains in artificial intelligence. Like the entrepreneurs of the early-1990s, we’re standing at the outset of a period that will see massive growth, productivity gains and the rapid transformation of business, creativity and data utilization.


Across industries and around the globe, the promises of AI are already apparent. What’s left to us, today, is to ensure that AI operates in collaboration with workers, complementing our abilities and allowing us to make the most of an exciting and singular period in our lives.


When AI Booms, Businesses Benefit

By the close of 2023, AI had been mentioned more than 30,000 times on earnings calls. Society seemed to embrace AI overnight. Machine learning, technology that was often used to automate routine processes, started giving way to generative AI, technology that outputs specialized knowledge work. Just as the internet democratized access to information, AI is democratizing the context and insights we obtain from data.


That adds up to productivity enhancements and demand for new skills. Similarly to how familiarity with personal computers became an expectation for professionals in the 1990s, today’s employers and business owners are beginning to hire workers who know their way around AI. Early adopters are already pushing the boundaries of what’s possible — and acceptable — with AI-generated images, videos, briefs, reports and marketing material.


Like any boom, the Age of AI needs an energy source. Data licensing, which provides firms with access to information, will be the in-demand raw material in the years to come. Entrepreneurs and executives are already aware of its potential: AI data licensing was valued at $203 million in Reddit’s recent IPO, for example.


What Comes Next?

The internet fundamentally changed our world in the 1990s. It changed the language we used, the way we interacted with one another and how we thought about the world. It changed the jobs we coveted and ways we studied.


The same is happening today.


AI is already leading to productivity gains, which in turn explains why the market is optimistic about stock prices and valuations. Inflation is coming down and output is on its way up. The prospects of high interest rates aren’t as intimidating today as they were two years ago, and the near-zero interest rates of March 2022 seem like ancient history. Cyclical sectors that benefit from a strong economy are outperforming defensive sectors and there’s an appetite for even the riskiest of corporate bonds.


In the financial services sector, AI is already generating a positive impact. The disjointed client experiences of yesterday are giving way to smoother, more client-friendly portals, workflows and interactions. Most significantly, AI is enabling financial advisors to collect, organize and retain volumes of information that allow delivery of more targeted and relevant solutions.


AI is also helping HR departments, back office personnel and technology vendors, leading to better client service and stronger adherence to rules and regulations, according to a recent report. AI isn’t all hype; it’s not something to be afraid of, either.


Our AI Chapter Will be Long and Prosperous

On a macro level, we should stand ready to capitalize on the collective benefits we’ll reap from our AI productivity boom. Remember the budget surpluses of the late-1990s? We, too, are poised at the edge of a period of growth.


In the years ahead we’ll see lower core inflation, tracking at or below the Fed’s 2% target. We will also see improving corporate profits that will lead to higher equity valuations, enabling millions of investors to retire comfortably and creating a wealth effect that supports consumption, which accounts for 70% of economic activity. Perhaps most importantly, rising equity markets will generate capital gains tax revenue, meaning smaller deficits at both the federal and state level. This will support government spending without the need for tax increases, leading to widespread improvements including social security solvency along with critical investments in healthcare, defense, infrastructure and education.


Capital market assumptions and portfolio construction are already changing in anticipation of this new reality. In part, AI is producing smarter investing, even as it brightens the overall economic picture in vivid detail.


In the financial services sector, AI adds the most value when used as a collaborative tool within teams of experts. It’s not meant to replace us; rather it’s meant to enable, enliven and strengthen our decision making, the relationships we form and the world we are ambitiously building for tomorrow.


We’re yet to see the full impact of AI across industries, but it’s already changing our lives for the better, in much the same way that the internet, mobile devices and mobile payments have in recent decades.