A.I. chatbots are fun, sometimes even useful and, until recently, endowed with the uncanny ability to mesmerize investors and fuel the U.S. stock market.
But the excellent performance of a new, relatively cheap artificial intelligence engine from a Chinese start-up, DeepSeek, has perturbed the market and complicated the A.I. story.
Investors are re-evaluating prominent companies swept up in A.I. fever, including Nvidia, Meta, Alphabet, Microsoft, Amazon, Tesla and the private start-up OpenAI. The notion that full-blown superhuman intelligence is imminent has spurred the-sky-is-the-limit valuations, as well as concerns about the political and social risks posed by advanced intelligence.
One immediate question: Is the main approach to developing A.I. in the United States — pouring billions of dollars into chips and infrastructure — worth the expenditure for all companies if similar results can be achieved far more cheaply? DeepSeek’s lower-cost innovations add urgency to bigger, longstanding financial questions: How much are artificial intelligence companies really worth, and what will the broader economic value of A.I. ultimately be?
Daren Acemoglu, a winner of the 2024 Nobel in economic science, gave me some answers. “There is a lot of hype in the industry,” he told me in a telephone conversation. Yes, he said, A.I. companies have made some “impressive achievements,” but he added that many financial and economic calculations were being based on mere “projections into the future that are sometimes exaggerated.”
Professor Acemoglu, an M.I.T. economist with an interest in the impact of technical innovations on global economics, is skeptical about the more fervent A.I. claims. He ranks A.I. as a significant advance, perhaps with a macroeconomic effect akin to the telephone, which was no small thing.
But don’t get carried away, he said, at least not yet. He doubts that full, advanced artificial general intelligence “that can do anything a human can do, but more,” will be achieved. Therefore, over the next decade, he estimated, increased productivity from the diffusion of impressive, but limited, A.I. engines will increase the size of the U.S. economy by only about 1 percent, or roughly 0.1 percent a year.
That doesn’t seem like enough to count as a technological revolution in economic terms, I said.
“Well, it’s not trivial,” Professor Acemoglu said, “but it’s one or two orders of magnitude less” than A.I. bulls “would like you to hear.” Of course, he added, if one or more companies achieve true, complete, artificial general intelligence within the next several years, then his estimates will turn out to be far too low.
Relentlessly Upbeat
It’s earnings season on Wall Street, and over the last two weeks, some of the U.S. companies that are developing and investing heavily in A.I. have offered entirely positive — and, frankly, self-serving — estimates of the A.I. future.
I read transcripts and listened to several conversations of top executives and analysts. The most extravagant narrative undoubtedly came from Elon Musk, Tesla’s chief executive, who took time off from his government work to talk about his company’s earnings.
While conceding that Tesla will have a tough year meeting production and profit targets, he was ecstatic about its A.I. prospects. Already, Mr. Musk claimed, “there is no company in the world that is as good at real-world A.I. as Tesla.” Once its cars are approved for “full self-driving” on the roads — he promised that he wasn’t “crying wolf” and that it would really happen this year, though he has been saying the same thing for many years — the company’s fleet will increase in value “10X,” he said, thanks to A.I.
Moreover, he said, Tesla will produce millions of A.I.-embedded Optimus robots in the not-too-distant future, creating a “path for Tesla being the most valuable company in the world by far.” Mr. Musk elaborated: “There is a path where Tesla is worth more than the next top five companies combined.” And, he added, “that is overwhelmingly due to autonomous vehicles and autonomous humanoid robots.”
Mr. Musk’s assertions are not universally accepted. From Jan. 24, when DeepSeek’s A.I. innovation began to roil the market, Tesla shares fell 7 percent through Thursday.
Other A.I. companies fared worse.
Shares of Nvidia, whose chips run much advanced A.I., dropped 12 percent. Aswath Damodaran, a New York University finance professor who has evaluated many tech companies, said DeepSeek’s efficiency implied that fewer and less-advanced chips would be needed for many A.I. functions. As a result, he wrote recently, the market for Nvidia’s high-end chips isn’t likely to grow as rapidly as expected. So, he said, Nvidia shares will be worth less than anticipated, even after the recent price decline.
In addition, shares of nuclear-powered electricity providers like the utilities Constellation and Vistra, which had soared in the expectation that A.I. data factories would need ever-increasing quantities of power, sank on reduced projections of the required electricity.
Meta, Alphabet and Microsoft, which have invested billions in A.I. development, have had mixed performances since DeepSeek’s arrival. Alphabet and Microsoft fell, while Meta rose modestly. The companies are complex and enormous, with different products and strategies, but the chiefs of all three said they would continue pouring vast sums into A.I. infrastructure in hopes of developing a competitive edge, while extending A.I. offerings throughout their consumer services. This past week, in fact, Alphabet said it would increase capital expenditures to $75 billion in 2025 from $52.5 billion last year — a huge A.I.-driven jump that surprised Wall Street and that, along with a slump in Alphabet’s cloud-computing sales, may account for the decline of its shares.
Military Supremacy
One company making heavy use of A.I. whose shares have surged this month is Palantir. It’s not a consumer brand, but its technology is widely used, not just by corporations but by the U.S. military, police forces and U.S. Immigration and Customs Enforcement. These have been growth areas in both Democratic and Republican administrations.
Shyam Sankar, the company’s chief technology officer, told analysts that DeepSeek had made basic A.I. cheaper. But he added: “I think the real lesson, a more profound one, is that we are at war with China. We are in an A.I. arms race.”
Alexander Karp, the company’s chief executive and one of its founders, spoke unabashedly of Palantir’s role in ensuring U.S. military supremacy. “We believe we are making America more lethal, making our adversaries increasingly afraid of acting against the interest of America and especially Americans.”
Careful readers may recall that Mr. Karp and Mr. Musk appeared together in Strategies in June. They were the two highest-paid executives of U.S. public corporations in 2023. This was according to filings with the Securities and Exchange Commission that for the first time required universal disclosure of “compensation actually paid.” Mr. Musk gained $1.4 billion in 2023 while Mr. Karp had a windfall of nearly $1.1 billion, the filings showed. Both of their fortunes continue to be tied to A.I. and, in idiosyncratic ways, to the U.S. government.
A.I. companies come in many shapes and sizes and will need to be valued in tiers, Professor Damodaran said. Consumer-facing companies embedding A.I. chatbots in services available to millions will benefit from lower-cost, commoditized A.I, while cutting-edge A.I. with military, corporate and scientific payoffs may receive premium valuations. Infrastructure companies like Nvidia can benefit from these variations and more, but not all ventures will require huge expenditures on the most formidable chips.
Given the complexity and uncertainty, it makes sense for long-term investors to diversify while A.I. fever cools down, Professor Acemoglu, the new Nobel laureate, said.
“I have a balanced portfolio,” he said. “So I’ve got tech stocks, health stocks, real estate stocks, everything. I don’t go out of my way to pick, you know, Tesla or any other company. I’m an index fund kind of guy, and I don’t do anything other than that.”
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