The International Monetary Fund (IMF) and the Bank of England have both warned in recent days of the danger of a global stock market crash should investor enthusiasm for companies exposed to the artificial intelligence boom wane.
Parallels have been drawn with the 2000 dotcom boom and the crash that followed. There was no one defining event that caused that market collapse, just the dawning realisation that the sums simply did not add up for many of the companies into which many investors were pouring their money.
The risk of something similar happening to companies at the forefront of the AI boom cannot be discounted. The five biggest technology companies now account for 30 per cent of the value of the US stock market.
They have committed truly eye-watering sums of money in the expectation that software and hardware will be able to match the human mind in terms of reasoning ability – by the end of the decade. Open AI – the company behind the ChatGPT programme – has signed deals totalling $1 trillion this year in pursuit of this elusive goal.
RM Block
Investors who have bought into this vision with enthusiasm may prove fickle if the huge returns it promises do not start to materialise, or are thrown into doubt.
It is important to note that neither the IMF nor the Bank of England is predicting a crash. They are pointing out that the conditions for a potential crash exist. Other equally prestigious institutions disagree. The US central bank – the Federal Reserve – has downplayed the risk. And there are significant differences between the current boom and the dotcom bubble of twenty-five years ago.
Ireland – with its exposure to many of the companies either directly or tangentially riding the AI wave – needs to pay attention. The future stability of our national finances is predicated on, at worst, a gradual tapering of the so-called “windfall taxes” paid in part by the Irish arms of these technology companies. A sudden deceleration of these revenues alongside a severe market correction would have serious consequences.
