Generative AI impacts the market

Foto del autor

By TP

Maravillas DelgadoThe year 2023 will go down in history as the year in which risk assets outpaced the rise in interest rates and the use of generative artificial intelligence (AI) became widespread. Globally, the most profitable sectors were information technology (53%), communications (45%) and consumer cyclicals (34%), which benefited from a greater appetite for risk and an improvement in the economic environment. AI is the protagonist of the markets that are turning towards this sector. The Magnificent Seven, the most successful American companies (Microsoft, Apple, Nvidia, Amazon, Alphabet, Meta and Tesla) have risen significantly since January. In fact, 80% and 75% of the increase in capitalization of the S&P 500 and the Nasdaq is due to this group of companies. The companies most exposed to generative AI are growing exponentially. Nvidia, which manufactures chips and semiconductors and is a world leader in AI computing, is the most successful value on the American stock market, multiplying its price by 15 in the last four years. Companies focused on the development of AI, such as Microsoft, due to its relationship with OpenAI and ChatGPT, or Meta with its new applications, have also experienced extraordinary growth. Apple and Alphabet, having recovered the level they had at the end of 2021, have a more lateral movement in the stock market. Tesla maintains a different situation due to competition from the Chinese electric car industry, having lost 60% of capitalization from its historical maximum. AI is generating an opportunity to create value for many companies, although there are those who think that growth so extraordinary it can give rise to a bubble, remembering the dotcom crisis of the year 2000. However, banks like Goldman Sachs and managers like Ray Dalio rule out the bubble, arguing solid fundamentals and differences with the dotcom crisis. Analyzing its fundamentals, the P/E ratio [número de veces que el beneficio está recogido en la cotización] of these companies is at reasonable levels, consistent with the market, except in the case of Nvidia, which doubles the average PER of this group. Japan began the year with an impressive result from the Nikkei 225 which, after three and a half decades of stagnation, managed to recover its pre-crisis level and reach a historical record. One of the reasons is the growth in Nvidia's share price, which boosted Advantest, one of its main semiconductor suppliers, and Tokyo Electron, another Japanese electronics producer. By unanimous decision at its March meeting, the Federal Reserve has maintained interest rates remain intact at the 5.25%-5.50% level in the face of resilient inflation and a stronger than expected labor market. The ECB, although it lowered its inflation estimate from 2.7% to 2.3%, also kept interest rates constant, highlighting the need to evaluate more data and ensure that an increase in wages does not threaten a rebound in inflation. The probability of recession, calculated by the difference between the yield of 10-year and 3-month bonds, gives hope, ending in January the sequence of falls in November and December. Strong consumption convinces both the Fed and the markets that a recession is unlikely. Global geopolitical instability, global economic uncertainty and expectations of lower interest rates spur private investors and central bankers alike. to take refuge in safer assets, boosting the price of gold by 6% in 2024. Bitcoin surprises in the first quarter with unprecedented growth, after the approval of the BlackRock ETF that opened the cryptocurrency market to more investors, with an increase of 51% since the beginning of the year. With the maintenance of rates, 2024 is seen as a year of transition towards a new cycle when central banks begin to lower the price of money. The continuation of the expansionary policy, fiscal policy and public debt are among the main concerns of investors. Petra Mateos is a professor of Financial Economics. Follow all the information on Economy and Business on Facebook and xor in our weekly newsletter

The Five Day agenda

The most important economic quotes of the day, with the keys and context to understand their scope. RECEIVE IT IN YOUR EMAIL

Subscribe to continue reading

Read without limits_