The question at hand explores which entities will reap the benefits as artificial intelligence continues to advance.
In a significant development, AI-related investment in 2025 has surpassed the combined growth from consumer spending, contributing more to economic growth than ever before. This trend indicates that AI capital expenditure (capex) is sustaining economic growth while consumption remains sluggish.
However, concerns about extreme economic inequality have arisen as a result of the AI boom. Some fear that the AI boom may represent the fulfillment of a dark vision, where a few individuals control Earth's resources, using AI to colonise the Solar System. Thomas Piketty's theory, that inequality in society tends to increase until a major political event forces it back down, adds weight to these concerns.
The question of who will make a profit from the AI spending is crucial in understanding the social impact of the AI boom. Corporate valuations are typically based on profit, not on investment or total revenue. Yet, markets don't currently expect the big AI labs to make untold profits. Instead, they anticipate companies like Nvidia, Microsoft, Meta, Alphabet, Amazon, AES Corp., AppLovin, Axon Enterprise, and MongoDB to achieve the highest profits from the AI boom. Nvidia, being the leading supplier of AI hardware, and the tech giants, investing hundreds of billions in AI data centers, are expected to lead the way.
The importance of corporate competition in limiting capital income is being highlighted in the context of the AI boom. Investors know that AI companies will compete with each other, and this competition is expected to limit their profit potential. Paul Kedrosky refers to this as a "private sector stimulus program."
The profit may go to AI model companies like OpenAI, xAI, and Anthropic, companies that provide the compute for AI models, or GPU companies like Nvidia. However, the combined valuation of OpenAI, xAI, and Anthropic is less than $1 trillion, while Nvidia's current valuation is around $4.5 trillion.
Despite the high S&P 500's PE ratio, which is around 30, historically somewhat high but not astronomically so, markets are remembering the importance of corporate competition in limiting capital income. The narrative that after AI takes everyone's jobs, only the people who own the AI companies will have money, leaving the mass of humanity impoverished and starving, is not supported by this competition.
In conclusion, the AI boom is reshaping the economic landscape, and understanding the profit dynamics, the role of competition, and the potential impact on inequality is crucial for investors and policymakers alike.
