[HardCodedBias]

The premise is flawed.

"The first chart below shows that so far there are no signs of profit margins rising outside the tech sector. This is ultimately what we are waiting for, because the value of AI companies today rests entirely on the promise that margins in the S&P 493 will eventually climb."

This is absolutely not necessary. The bull case is that AI will bring great efficiencies. The surplus profits from those efficiencies could easily be competed away by firms who have adopted AI. Those firms who do not adopt AI will have their margis crushed.

[jagged-chisel]

> The surplus profits from those efficiencies could easily be …

… usurped by the tech companies?

[woeirua]

So then your argument would be that we could see a bifurcation in the SP493 where those who adopt AI see increasing margins and those who do not have their margins crushed. What's funny is that in that scenario, the aggregate market might look zero sum.

[beepbooptheory]

What does this look like for any given company? Which margins will you be crushed by for not adopting?

[vitally3643]

Labor, obviously. That's where all the money in a business goes: paying pesky human employees.

If your employees can suddenly magically do more work with the same pay, that's free money (for you). You can pay fewer employees, or pay them less by threatening to replace them with the magic robot.

The magical thinking version of this is that your productivity gains magically translate into more customers and more sales for the same input cost and labor. The free money is really free because you're a magical special snowflake company and every consumer will want your brand of magic machine outputs and not the other guy's. Where does all this money come from? Do those extra customers even exist? Who cares!

[degamad]

Hypothetical:

Pepsi starts using AI in some magical way that allows them to increase their margins. This allows them to reduce prices while increasing profits. Price-sensitive customers switch from Coca Cola products to Pepsi products. Coca Cola loses some market share, reducing economies of scale, and reducing margins, thus reducing profits. As the cycle repeats, Pepsi moves to dominate the market, and Coca Cola is slowly squeezed down.

[pdimitar]

Realistic and historically accurate:

Pepsi starts collecting the extra profits with zero price reductions.

[fc417fc802]

In a duopoly, probably yes. However in a more competitive environment where several incumbents have achieved a given optimization a race to the bottom is likely to occur because it only takes one of them preferring to increase their relative market share to kick the process off.

[SoftTalker]

The cola market is effectively a duopoly.

[eru]

Barriers to entry ain't exactly high.

[SoftTalker]

sacrificing even more profits that may be had by undercutting coca-cola's price? The CEO would be fired.

[DangitBobby]

Markets generally don't follow Econ 101. There are effects beyond first order when it comes to pricing.

[pdimitar]

Really depends on the concrete numbers and the projections. You could be right, I could be right, I am only saying what I've witnessed historically in general. Greed trumps a lot of other fairly rational courses of action.

[ares623]

Ah yes, magical hypotheticals

[fc417fc802]

Do you have a constructive objection to the described market dynamic?

[pdimitar]

Yes: historically this is not what I have observed businesses doing. They'd fight tooth and nail to reduce expenses for the fatter profits; cost savings are seldom if ever passed to consumers.

[eru]

Obviously they don't voluntarily pass on cost savings to customers. That's why competition is there for.

Btw, check how much RAM costs today per byte than eg 20 years ago. Even including today's AI driven price increases. Or check how much it costs to keep your house light up nice and bright compared to 50 years ago.

[eru]

With enough competition, the surplus will go to consumers (and workers).

[therobots927]

Well those efficiency gains have to show up somewhere. It would imply that consumers / customers of these companies are receiving cheaper or higher value services / goods.

Thats at odds with current inflation trends to say the least.

[DrewADesign]

Even aside from inflation, the prospect of efficiency-borne gains meaningfully benefiting the consumer rather than fattening corporate profit margins, frankly, seems like magical thinking. I’ve seen no evidence that our current corporate culture is capable of it (for any longer than it takes to dominate some market.)

[eru]

What does corporate culture have to do with any of it? The surplus goes to the consumer not because of any benevolent corporate culture, but because of competition.

And (most) efficiency gains have benefited customers in the past.

Just check eg how much you are paying for excellent lighting of your house today vs 200 years ago.

[DrewADesign]

Yeah that’s why health care and credit are so cheap!

How about literally anything run by private equity?

[eru]

> Yeah that’s why health care and credit are so cheap!

Yep, though only where competition is allowed!

> How about literally anything run by private equity?

Like many airlines? Flying has never been cheaper.

Planet Fitness is also owned by private equity, and their 10$/month membership plan has been steady for two decades despite inflation.

You can find lots more examples.

[DrewADesign]

It certainly didn’t seem to stop enshittification in any meaningful way.

[throwaway27448]

I imagine this would come from outside the US.