Moneycontrol Pro Panorama | Betting on AI's uneven future

AI is unlikely to come after every job

Dear Reader,

Last Friday, we tried to cover everything that scares us about Artificial Intelligence (AI), from job losses to existential terror. It was ironic that a research firm, Citrini, did that with the additional aplomb of mathematics this week and spooked investors across the globe. Citrini’s blogpost starts with this question: “What if our AI bullishness continues to be right... and what if that’s actually bearish?” It then goes on to explain a horrific feedback loop with no brake where AI continues to kick humans out of jobs and earnings.

The onslaught of bearish bets on IT firms after the AI scare is still ongoing and newer sectors, including banks, have gotten enfolded into this fear. Even Nvidia boss Jensen Huang couldn’t dispel this anxiety completely by assuring AI won’t harm IT and by reporting  a stellar quarterly performance. Chipmaker Nvidia is one of the biggest beneficiaries of AI advancement since it only increases the demand for their electronic chips. Perhaps this is why the Street is taking Huang’s assurances that AI won’t come after everyone with a bagful of salt. After all, Nvidia has nothing to lose.

To be fair, AI is unlikely to come after every job and a Dallas Federal Reserve letter says so. Manas Chakravarty explains succinctly the details of the report in his piece here. Using labour bureau data, economist J Scott Davis assesses what AI has done to jobs in industries exposed the most to it and finds that entry-level employment opportunities are being killed but wage growth has increased. In essence, AI is helping experienced professionals get more income but decimating the opportunity for new workers to gain the exact experience. A Catch-22 situation indeed, and the Dallas Fed letter doesn’t offer any solution for this.

Two questions vex investors here for which answers are yet to arrive. One is if AI is not transforming labour productivity or even lifting whole organisations, the narrative justifying lofty valuations of firms such as Nvidia may be shallow. Also, AI complements seasoned professionals, but what happens to those who never find work to become seasoned?

The first question leads us to the second. In Citrini’s report, the premise is that AI leads to employment collapse, consumption fall and recession, but at the same time the sectors running on AI enjoy a surge in revenue and profits. Robert Armstrong has asked in FT’s newsletter Unhedged on February 24 that how can a collapsing consumption not affect companies? “Citrini pictures a world of massively increasing productivity accompanied by a collapse in consumption. Does that make sense?” Armstrong asks.

In whichever way, the AI narrative is spun by millions of stakeholders and investors, one factor is central and true. The effect of AI on markets, industries and economies would be uneven and investors who can play the uneven bets smartly would stand out. How better to study this unevenness than what is transpiring in the Indian IT sector right now!

Shishir Asthana explains how AI is making IT more productive and profitable but at the same time threatening its future relevance. One way to smoothen this disruption is to bridge the gap of AI research, Asthana explains.

In the meantime, it pays to hedge and invest smartly in parts that will gain with AI. Madhuchanda Dey offers a glimpse into what investors must look out for in the IT sector’s most tricky reinvention in her piece here.

IT may be the poster boy of AI upheaval, but there are other critical sectors that come under the AI onslaught. The financial sector is one such part of the economy. India’s large banks and select non-banks have carved out a large portion of their tech spending to AI-related infrastructure. A Jefferies report looks at which areas have banks prioritised for AI adoption and where does the money go to. “Indian & global banks are advancing AI/ML capabilities by focusing on data structuring & analytics (including LLM), automation & support, mobile app upgrades, & staff-reskilling. Focus is on optimising sales, operating efficiency & risk controls,” the report says.

In short, much of the work is in targeting and getting customers, thereby growing the loan book. Furthermore, AI is being used for analytics at banks and reducing the turnaround time in services. Large lenders are also using AI to assess borrowers on credit risk parameters. Financial firms have discovered a high level of efficiency through AI, but concerns around data protection and sanctity have bogged down the regulator.

The upshot is that AI is becoming commonplace in many parts of the economy. For a country like India where income inequality is climbing, and where a large swathe of the population struggles to find jobs, it is imperative that policymakers navigate the AI phenomenon deftly.

Meanwhile, to be fair, we asked ChatGPT when will agentic AI fully replace the need for Indian IT services worldwide. The answer was a reassuring never.

Investing insights from our research team

AI-led IT sell-off – Time to avoid or double down?

Aptus Value: Business moats, strong execution capabilities to drive valuation

HEG: Likely to benefit from easier trade ties with US

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Decoding Economics: Dallas Fed data reveal why AI is replacing young workers while turbocharging veterans

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Corporate earnings signal manufacturing surge ahead of Friday's GDP reboot

Has the US dream soured for solar panel exporters?

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Tech groups turn to more chip-backed loans to fund AI arms race (republished from the FT)

India, AI and the market’s blind spot

Tariff reforms propel India’s alco-bev global ambitions

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Aparna Iyer Moneycontrol Pro