Bob Homan: The shareholder wins

March 12, 2024

^{This column was originally written in Dutch. This is an English translation.}

By Bob Homan, Head of ING Investment Office

The shareholder wins. They benefit most from labor productivity boosted by AI.

Thanks mainly to AI-related stocks, stock markets continue to set new records. It is now mainly the shares of companies in the supply chain that are benefiting. A large number of the breakthrough AI applications are still to come. It is unclear exactly who will do what. But most economists and strategists agree that AI will give future labor productivity a significant boost.

Yet I fear this is only partly true. Indeed, the productivity of companies that embrace AI will increase significantly, allowing them to do the same work with fewer people. This will mean a loss of jobs, but will not automatically lead to an improvement in labor productivity.

It's like this: I expect that many people who lose their jobs in this way will find work in other sectors. In a previous column I wrote about the attention economy: professions such as coaching, in all shapes and sizes, or jobs in healthcare. Great jobs, but low scores on any measurable form of productivity, let alone productivity improvement.

This would mean that total productivity in society increases less than in companies that really start working with AI. Most likely, these are primarily the large companies, a large portion of which are listed on the stock exchange. They can take their AI advantage and thus increase their profitability. This may have several reasons, but productivity increases are an important part of companies' profit growth. This growth is in any case somewhat stronger than the nominal growth of the total economy. And with the boosting effect of the expected AI productivity leap, this could well be somewhat greater.

And that makes the shareholder the real winner of this AI development: additional profit growth is beneficial for stock investments in the long term. At the same time, you could say that due to the growth of the attention economy, the impact of AI on overall economic growth is smaller than it could be. This also means that interest rates will be raised less. Because in the longer term, the interest rate is largely driven by economic growth. Another reason why AI stocks are relatively more attractive than bonds in the long term.

More columns by Bob Homan