Why does the stock market care about AI?

March 6, 2024   |   Investing

Zak Lutz here, partner and Chief Investment Officer at LifeGuide.

I was skiing with a friend recently and, on the ride up between runs, our conversation kept coming back to the markets. (Which I’m sure is the center of your conversations during ski outings as well!) My friend was eager to know, ”What’s driving up stocks so much right now??”

So I told him, “It’s all about artificial intelligence right now.”

Let me explain why:

Note: This video was originally produced for our monthly client newsletter, Guidepost.

AI > Inflation

Right now, the US stock market cares MORE about artificial intelligence (“AI”) than nagging inflation concerns. Let that one sink in for a second.

By now, you’re likely aware of “AI” as a buzzword in today’s society. But really, what is it?

Simply put, AI is technology that enables computers to learn, read, write, analyze, and create.

AI isn’t new—it’s actually has been around for a while. What is new, however, is that, as the CEO of Nvidia explains, AI has reached a “tipping point” that is seeing the technology begin to go “mainstream.” Which is why AI is getting so much attention right now.

So, what does AI have to do with the markets going up?

One word: Productivity. Stock markets love productivity.

This is how it works: Increased productivity increases the profits a company can make, which increases its share price. AI could be the next major innovation that drives significant productivity, as AI will be able to do much of the work that humans are doing now.

In fact, Goldman Sachs predicts 25% of jobs in the US will soon be automated by AI.

Before you panic, stay with me! Because, while that statistic may sound scary at face value, it could actually be quite promising.

Why? Because right now, our economy is suffering from a labor shortage, NOT an employment shortage. We currently have about 1.4 job openings for every unemployed American.

AI could ease our labor shortage which will help to lessen inflation pressure.

So, US stocks are going up right now because they are pricing in the large and broad productivity gains that may be possible with AI.

Written in the sand

Now, I want to shift gears and share why AI is actually an example of how God provides for us. I’m reading a book called The God Guarantee that unpacks this idea. The author, Jack Alexander,  makes the point that we never have to fear not having enough. Why? Because God has put more “capacity” into everything than we can imagine possible.

He says, “Every generation uncovers more of the secrets provided for us at the beginning of time; divine solutions to meet all our needs.”

In other words, we keep discovering the capacity He has put in creation to meet our needs as the global population grows.  

Consider sand for a moment. Sand (or, more technically, “silica”) is the world’s second most abundant element. It has existed for as long as the world has had dry land. Yet, only in the past few decades have people discovered just some of what it can do.

For example, silica can be melted, purified, and sliced into thin wafers that are turned into microchips. These microchips, in turn, run every single computer and smartphone in the world.

Sand’s ability to do that was beyond imagination just 70 years ago. We have only recently discovered its incredible capacity.

I think we can take this one step further and tie this idea of the capacity God created in sand back to AI. Why? Because AI runs on computers, and computers, essentially, run on sand.

Perhaps the “capacity” for AI was put into sand by God from the very beginning—all to make good on His promise to provide for His people and their children, and their children’s children, for generations to come.

To wrap it all up, my hope today is that this helps you not only better understand what is going on in the markets right now but also provides a tangible reminder that God is still, and always will be, at the center of it all.