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To me it seems that AI is not even priced into the market cap of the big tech companies yet. Since GPT-3 came out in mid 2020: Alphabet's market cap doubled.

To me it seems that AI is not even priced into the market cap of the big tech companies yet. Since GPT-3 came out in mid 2020: Alphabet's market cap doubled. But their earnings more than doubled. Same for Microsoft. In other words: Their p/e ratio did not increase. The future potential of AI is not yet priced in. The cost of all human labor is something like $70 trillion per year. Automating 1% of that per year would increase the revenue of tech companies by $700B per year. Let Microsoft capture 10% of that and have 20% margin, that's an increase in profit of $14B per year. Assign a p/e of 30 to that, and its's $420B of additional market cap per year. That would be about 15% growth in market cap per year for Microsoft.

sinuhe69 2y ago
You have to take out the post-pandemic rebound effect before you can talk about the AI effect. From an earnings perspective, no AI has bought a significant amount for the bigtechs.
- ArtTimeInvestor 2y ago
  What do you mean? Tech companies dipped in early 2020 for a short time, but rebounded already before GPT-3 came out. And then - if anything - the freshly printed money and the increased demand in technology made the valuations of tech companies go up.
iLoveOncall 2y ago
Or maybe it has been priced in and its value was determined to be 0?
Workaccount2 2y ago
If a company figured out production ready automation, boots on the ground actually being replaced with prompts on the ground, they would probably trade at a P/E well over 100.
somenameforme 2y ago
Aside from some nitpicky numeric issues, you're considering the benefit without the cost. If we ever achieve real AI, the sort that could realistically start replacing labor pools with high efficiency, then you'd destroy your own economy. The people that work for you (in a broad enough picture) are the exact same people buying your stuff. Kill your labor pool, kill your demand, kill your economy. Then unemployed people get angry, start torching AI systems, and electing what will be called 'luddites.'

sinuhe69 2y ago

You have to take out the post-pandemic rebound effect before you can talk about the AI effect. From an earnings perspective, no AI has bought a significant amount for the bigtechs.

ArtTimeInvestor 2y ago
What do you mean? Tech companies dipped in early 2020 for a short time, but rebounded already before GPT-3 came out. And then - if anything - the freshly printed money and the increased demand in technology made the valuations of tech companies go up.

iLoveOncall 2y ago

Or maybe it has been priced in and its value was determined to be 0?

Workaccount2 2y ago

If a company figured out production ready automation, boots on the ground actually being replaced with prompts on the ground, they would probably trade at a P/E well over 100.

somenameforme 2y ago

Aside from some nitpicky numeric issues, you're considering the benefit without the cost. If we ever achieve real AI, the sort that could realistically start replacing labor pools with high efficiency, then you'd destroy your own economy. The people that work for you (in a broad enough picture) are the exact same people buying your stuff. Kill your labor pool, kill your demand, kill your economy. Then unemployed people get angry, start torching AI systems, and electing what will be called 'luddites.'