If you look at the markets to begin the year, software has been hit the hardest out of all the subsectors. The IGV (iShares Expanded Tech-Software Sector ETF) is down over 21% just this past week and has a 3-month performance of negative 25%. We are still believers that artificial intelligence will be a significant part of our economy, but we also believe that it will first be complimentary. If you look at the chart below provided by Torsten Slok, Chief Economist at Apollo Global Management, there are still no signs of profit margins increasing outside of the technology sector. Although AI is growing rapidly, we still have not seen the benefit of AI much outside of the Magnificent 7 (Nvidia, Meta, Alphabet, Tesla, Microsoft, Amazon and Apple).
Sources: Bloomberg, Macrobond, Apollo Chief Economist
Markets tend to be very reactionary, which we believe we are currently seeing with the drastic pullback of software to begin the year. We think it’s far more likely to enhance the human workforce than replace them – and once artificial intelligence gets to the point of replacing human jobs, historically, in technological revolutions, two jobs are created for every one job lost. Although we see artificial intelligence is coming, we don’t think C3P0 is taking over our jobs just yet!