June 30, 2024—AI and the Jobs Act—see our full report sent to clients
COMMENT ON AI AND THE JOBS ACT
Potential changes brought about by the Jobs Act’s sunsetting provisions are considerably more significant financially than recent trends in microprocessors designed towards artificial intelligence and so have a considerably greater impact on the US economy and stock values. Jobs Act cash-impacting changes could pose a risk to technology shares, as tax credits, the actual tax rate, research, and depreciation allowances could be altered. Individual rates will also rise, necessitating a cautious approach to our investment strategies.
After reading through scores of financial filings, our position on AI is that it will take a long time, if ever, for promised benefits to be felt via impacting shareholder value in the 99%+ of firms outside the microprocessor, software, and consulting firms that sell those services. Eventually, those firms will succumb to customer reality.
Many firms, from Boeing to UPS, had no comment on the matter of AI, while others, like Honeywell, mentioned it just in passing, without any specific application to how it would lift cash flows or other financial metrics.
Firms commenting on AI include benefits to compliance risks, the timing of reports, including legal and accounting, repairing design flaws (such software has existed for years), and some labor savings. Consulting firms like Accenture claimed costs would rise, at least in the short term.
We do not see general economy-wide advantages capable of lifting valuation multiples due to AI revenue enhancement. Stability metrics could improve. Increasing competitive risks, cyberattacks, or penetrating competitive advantages may harm metrics.
GE’s comments on cybersecurity should extend to AI: “As a result, we may be unable to promptly or effectively detect, investigate, remediate or recover from cybersecurity attacks, which may result in material harm to our systems, information or business.”
If benefits occur, they will be equally available sector-wide, making firms equally competitive. Some firms warned that competitive threats from AI might infringe on their business, a particular risk of the advancement.
Should a higher unemployment rate be seen as technology replacing labor, that could well have a negative impact. Years ago, we heard how large-scale supercomputer competition capable of trillions of calculations a second would also change the world, including weather forecasts. I’m still waiting
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Until we see a tangible impact capable of improving shareholder valuations across the board, we will be content to watch others invest in and comment on this world-altering technology, as we did with EVs. This was the correct decision, as time has proven, and it will likely be again. If not, we will watch the losers fold and place capital into those most benefiting.
