June 2024 / VIDEO
Growing pains and opportunity: Analysing what's next in the AI boom
David Giroux explains why AI is likely to be deflationary over time and why he likes software
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.
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June 2024 / INVESTMENT INSIGHTS
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 vice president of T. Rowe Price Group, Inc.
