Leading Economist Questions AI Payoff Beyond Tech Sector

AI Investments Show Limited Returns Outside Tech, Says Economist

Despite significant investment in artificial intelligence across corporate America and a wave of media attention, economist Torsten Slok contends that the benefits of AI remain largely confined to the technology sector. Slok, chief economist at Apollo Global Management, expressed these views in a recent post on the Apollo website, suggesting that outside of companies developing and selling AI technology, tangible gains are elusive.

Magnificent 7 See Growth While Rest of S&P 500 Stalls

Slok compared the performance of AI-focused companies, particularly the so-called "Magnificent 7"—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—with the remaining firms in the S&P 500. According to Slok, revenue per worker and profit margins are on the rise for the Magnificent 7, while they remain flat for the rest of the S&P 500, often referred to as the S&P 493. "Profit margins are rising for the Mag 7 but are flat for the S&P 493," Slok wrote, adding, "there are still no signs of AI boosting productivity growth."

Corporate Investment and AI Adoption Hit Slowdown

With little visible impact on the bottom line, Slok believes mainstream corporate America is now reducing investments in AI. He noted that companies are “starting to view token spending not as a source of growth but as a cost center that weighs on margins." Slok observed that while venture capital-backed firms are significantly increasing spending on AI, most large companies do not see an urgent need for acquiring the latest models and are reluctant to pay for them. "As long as agentic AI and token spending are confined to a small part of the economy, the macroeconomic effects of AI will be very limited," he wrote.

Challenges Convert AI Technology Into Broad Business Value

Slok questioned whether mainstream corporate America can translate increasingly affordable AI solutions into meaningful revenue and profit improvements. He commented on this issue as AI company Anthropic recently filed for an initial public offering, bringing the topic to the forefront. Slok highlighted the difference between computation and business decision-making: "AI may be a great calculator, but in business, intelligence is mostly judgement." He emphasized that judgement is context-dependent and varies according to the people or systems involved.

AI Limitations Identified by Slok

In his critique of artificial intelligence, Slok outlined several areas where AI currently falls short. He asserted that AI systems lack understanding of accountability, trust, company culture, unwritten rules, ethical dilemmas, or fairness, all of which he described as essential in shaping reputational risk and, ultimately, financial outcomes for businesses.

AI's Macroeconomic Impact Remains Limited

Slok concluded that the broader effects of AI will depend on its impact outside the leading technology companies, particularly on the S&P 493. "So far, there is no evidence that revenue growth or margins are improving outside the tech sector," he wrote. This sentiment comes as financial markets respond to ongoing debate over AI's role in business, high-profile incidents involving AI technology, discussions surrounding job cuts, and growing public skepticism about the technology's impact beyond the tech industry.

Source: kron4.com.