The successive crises of recent years and their consequences, from the unprecedented lockdown to the war in the Middle East and the oil crisis, have spawned a paradox in the world of investment. Despite increased and extreme uncertainty many times and despite the fact that within a five-year period we have seen the rule of law prevail. «black swans», such as the pandemic and the closure of the Straits of Hormuz, investors prefer risk to security.
Traditionally, whenever investors saw dark clouds gathering on the horizon, they ran in the same direction: they sought refuge in the certainty of gold, state bonds, dollar and yen. Today, however, despite constant geopolitical tensions, high interest rates, invisible public debt and global accuracy, more and more choose to pursue the shares of Artificial Intelligence.
This is not because the shares of Nvidia and the other megathea that are leading to the technological revolution are... harmless but because investors are more afraid of losing the AI train. In other words, markets estimate that the risk of Artificial Intelligence is a risk that can be partly calculated, even against large expected profits, while safe shelters do not offer the certainty of the past.
Not unduly would one say, as according to Bank of America, from 1774 to today American shares have yielded annual profits of 8.7%, while respectively 10-year American state bonds have offered 5.1% annually to investors.
This is a very impressive element, especially considering the major crises and wars that have marked the last two and a half centuries. A time when fear led investors to the embrace of gold, economic recessions in government bonds and crises in the dollar.
Today investors do not buy on the basis of security as we knew it but on the basis of the so-called FOMO, the fear of losing the terrifying rally of Artificial Intelligence. The truly deafening rally that began in late 2022 and has led the S&P 500 to profits over 100%, despite inflationary pressures and higher interest rates of 20 years, makes the most pessimistic think that everyone else is getting rich and this perception sustains the rally.
In combination, of course, with the belief that AI will prove to be a much more decisive for the economy a technological cycle than the Internet, which means that it will cause huge reversals, on the basis of which corporate profits will be born.
Meanwhile, an important role in the prevailing paradox is played by changing the behaviour of safe investment shelters. There are major reversals in the bond market. The American public debt is preparing to exceed 40 trillion. dollars for the first time in history and the enormous need for refinancing in the context of successive crises increases the budgetary risk. The result is American bonds, an asset that for years was considered «Risk-free» to be burdened by political and budgetary risks.
Gold, for its part, is seen to be overly affected by interest rates. At the same time, while offering security in times of turbulence, it does not promise profits such as Artificial Intelligence. Thus, in a high interest rate environment and with the impressive rally of last year, investors in many cases choose to liquidate profits from gold to finance technological stock markets.
And one more thing about Artificial Intelligence. A development that is not yet at the forefront of the current situation. According to a FT report, OpenAI discusses the possibility of granting the US public rate of 5% of the company, in its attempt to align its interests with the government and mitigate regulatory control, in view of the planned IPO. This is a development that basically turns AI from purely business opportunity to critical national infrastructure.
All this suggests that we are going into a new economy. In the old economy gold protected wealth, bonds offered stability and the primary goal was security and capital conservation. Now, it is the Artificial Intelligence that promises to create even greater wealth and create surplus values through innovation.
Investors did not cease to love safe shelters such as precious metals and bonds. They stopped fearing the new because they believe that «new»That is, AI will change the world like nothing else in human history. The greatest fear is for an investor to be absent from the Artificial Intelligence party. For this reason, as long as AI wins impressions and substance, as long as it enhances productivity and upgrades the expectations for growth, the markets will prefer the uncertainty of the great technological revolution.
Except the parties don't last forever and as history has shown, if AI's stock bubble pops at some point, it probably won't pop because technology failed. It will explode because investor expectations will have far exceeded reality itself. After all, every major technological revolution has followed a certain pattern with excessive enthusiasm at first and excessive assessments then...
