The rapid advance in AI applications are expected to usher humanity into a new era, vastly different from anything seen or experienced before.
Such a transformation will enable countries, institutions, and individuals to harness AI in different ways, though some of these might pose significant risks and with complex economic, social, and human consequences. The challenges will require careful management through regulations, which some countries are already beginning to address.
In this context, we will explore some of the economic challenges that could arise from AI’s expansion, particularly as the stock prices of companies in this sector have skyrocketed beyond expectations, reminiscent of the dotcom bubble of the early 2000s, which resulted in significant losses for many companies and investors.
So far, most analyses have focused primarily on the positive aspects of this transformation and the role AI will play. There is no doubt that AI will contribute significantly to new scientific advances, helping humanity overcome numerous challenges, including treating diseases, predicting disasters, enhancing services, and improving product quality.
However, we must also consider the potential risks that come with this.
In the coming years, the use of AI will expand dramatically, leading to a significant increase in the use of robots and machines, particularly by large companies with substantial financial and technological means. The shift will likely result in the replacement of human labor, causing thousands of small and medium-sized businesses around the world to face bankruptcy and millions of people to lose their jobs, leading to higher unemployment.
Different countries will respond to this transition in varied ways. Wealthier nations may provide subsidies and social support to help their citizens adapt and meet their basic needs.
In contrast, poor and less developed countries, already grappling with overpopulation and limited resources, may struggle to address the AI challenge, potentially leading to social unrest.
In rich and poor nations, purchasing power could be significantly affected, resulting in decreased demand for goods and services. This, in turn, may lead to a reduction in production volumes, lower living standards, and a growing list of bankrupt businesses and institutions.
Make sure to have regulations on AI
Given these potential consequences, it is important to address the economic and social risks associated with AI while also exploring solutions to harness its benefits. Further, AI tools present security challenges, as they provide capabilities that, if misused, could pose threats to societies and individuals.
While it is challenging to address all the issues arising from the widespread use of AI, many of these can be mitigated.
For instance, unemployment could be tackled through education and training programs designed to equip more people with the skills needed to adapt to these technology shifts. This will require substantial investment in AI-related specializations, in terms of human capital and financial resources, and will take time to implement effectively.
The world now stands on the threshold of a new era, one that presents significant challenges amid conflicts, and the rising demand for natural resources—particularly those needed for advanced technology. The competition for resources has already begun and will intensify.
A touch of caution for investors?
From a financial and investment perspective, caution is needed when trading in AI company stocks, which have seen their prices skyrocket in a relatively short period.
We must heed the lessons of the dotcom bubble, as there is a risk that AI technology companies could experience a similar collapse. Many AI stocks currently trade at levels that do not reflect the actual size of their businesses or their profitability.
Like some companies from the dotcom era, not all AI firms may survive long-term, and it took years for successful companies from that period to achieve the levels of profit we see today.
Likewise, it will take years for AI companies' profits to catch up to their stock valuations, making prudent decision-making essential for investors.
