By  David R. Giroux

Growing pains and opportunity: Analyzing what's next in the AI boom

David Giroux explains why AI is likely to be deflationary over time and why he likes software.

June 2024, From the Field -

Key Insights
  • Excitement over artificial intelligence (AI) has created a great deal of market capitalization. It’s still early days for adoption of this disruptive technology.
  • Adoption of advanced AI is likely to be deflationary in the intermediate term, as productivity gains could lead to higher unemployment.
  • New features could enable some software companies to take share or increase prices, while using AI to aid software development could lower their costs.

Transcript

We are still really early in the AI story.

If you look at all the survey data you see from Fortune 1000 kind of CIOs, what are they doing from an AI perspective?

Right now, they're just, they're doing tests. They're doing beta analysis.

This all came on so quickly.

How do we deploy this to the benefit, and what's kind of the ROI?

We're really early days there.

The longer-term implication of this--maybe this even goes to the rates discussion—is, and we are going to have to deal with this as a civilization, as a country, as a world: This is going to destroy jobs.

And that will probably put that supply-demand imbalance for labor in a little bit more favorable position for an employer.

You're not just competing with, you know, two different people working for the same job but maybe with a computer option or a software option.

So I think that is actually deflationary long term because a lot of the productivity is coming from, you know, if you can get 20% productivity, 50% productivity, you don’t need as many workers.

And that might mean a structural increase in the unemployment rate and actually structural, a decline in the inflation rate, potentially. And that's just something that we're going to have to deal with.

I'm bullish on software companies around AI.

But what makes up software companies? It's mostly software engineers. That's the number one job at all these companies. But they don’t need as many software engineers as they had in the past. You can have a situation where these software companies are actually  generating higher revenue growth because of AI, but they’re also benefiting because they need fewer software engineers to write the code than they did in the past.

So you can have a really nice situation where revenue growth is accelerating and margins are going the right way as well.

David R. Giroux Head of Investment Strategy and Chief Investment Officer

David Giroux is a portfolio manager for the Capital Appreciation Strategy, including the Capital Appreciation Fund and Capital Appreciation Equity ETF, and co-portfolio manager for the Capital Appreciation and Income Fund at T. Rowe Price Investment Management. He also is head of Investment Strategy and chief investment officer for T. Rowe Price Investment Management. David is the chairman of the Capital Appreciation and Capital Appreciation Equity ETF Investment Advisory Committees and a cochairman of the Capital Appreciation and Income Investment Advisory Committee. He is a member of the T. Rowe Price Investment Management ESG Investing Committee and the T. Rowe Price Investment Management Investment Steering Committee. David is a six-time nominee and two-time winner of Morningstar's Fund Manager of the Year award.1 His fund also has won 22 Best Fund awards2 from Lipper. David is a vice president of T. Rowe Price Group, Inc.

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1 Established in 1988, the Morningstar Fund Manager of the Year award recognizes portfolio managers who demonstrate excellent investment skill and the courage to differ from the consensus to benefit investors. The Fund Manager of the Year award winners are chosen based on research and in-depth qualitative evaluation by Morningstar's Manager Research Group. To qualify for the award, managers' funds must have not only posted impressive returns for the year, but the managers also must have a record of delivering outstanding long-term risk-adjusted performance and of aligning their interests with shareholders'. Managers' funds must currently have a Morningstar Analyst Rating™ of Gold or Silver. David Giroux won the award for Allocation Funds in 2012 and Allocation/Alternative Funds in 2017.

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc., including, but not limited to, Morningstar Research Services LLC. Morningstar's Manager Research Group produces various ratings including the Morningstar Analyst Rating for funds and the Morningstar Quantitative Rating for funds. The Analyst Rating is derived from a qualitative assessment process performed by a manager research analyst, whereas the Morningstar Quantitative Rating uses a machine-learning model based on the decision-making processes of Morningstar's analysts, their past ratings decisions, and the data used to support those decisions. In both cases, the ratings are forward-looking assessments and include assumptions of future events, which may or may not occur or may differ significantly from what was assumed. The Analyst Ratings and Quantitative Ratings are statements of opinions, subject to change, are not to be considered as guarantees, and should not be used as the sole basis for investment decisions. This press release is for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.

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2 The Capital Appreciation Fund received the 2024 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 5-year and 10-year periods ended 12/31/2023, the 2023 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 3-year, 5-year, and 10-year periods ended 12/31/2022, the 2022 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2021, the 2021 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2020, the 2020 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2019, the 2019 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2018, the 2018 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2017, the 2017 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2016, the 2016 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 3-year, 5-year, and 10-year periods ended 12/31/2015, the 2015 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/14, the 2014 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2013, the 2013 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2012, the 2012 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2011, the 2011 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2010, the 2010 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 5-year and 10-year periods ended 12/31/2009, and the 2009 Lipper Fund Classification Award for Best Mixed-Asset Target Allocation Growth Fund over the 10-year period ended 12/31/2008.

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