Is AI Overhyped? Apollo Economist Sees "Zero Financial Payoff" Beyond Tech Companies

Artificial intelligence (AI) is generating significant buzz in the stock market. Major tech firms are pouring hundreds of billions into AI development, hoping it will spur a new wave of economic growth. If successful, AI could uplift the global economy. However, Apollo Global Management's Chief Economist, Torsten Slok, has presented a starkly contrasting view.

His recent study suggests that AI has not brought any financial benefits to American corporations outside of the tech sector. Despite the widespread hype, Slok's findings reveal that AI technology has failed to generate any financial gains for non-tech companies. The seven leading tech companies, known as the Magnificent Seven, are heavily investing in AI, expecting it to boost their profitability through improved processes and cost reductions.

However, Slok's research indicates that this may not be the case yet. While revenue per worker and profit margins are increasing for the Magnificent Seven, they remain stagnant for the rest of the S&P 500 companies. The only groups reaping AI's benefits are those involved in AI technology, semiconductors, and AI tools. Slok's analysis implies that current tech stocks might be overvalued.

If AI doesn't deliver widespread economic gains, this could lead to a potential tech stock sell-off and a possible decline in tech ETFs. While there are differing viewpoints on AI's future, those who agree with Slok's assessment might consider diversifying their portfolios away from tech stocks. A more diversified approach, such as investing in an S&P 500 index fund, could be a safer strategy than concentrating on tech-heavy ETFs. Historically, the S&P 500 index fund has provided strong returns, even during market downturns.