Artificial intelligence is supposed to boost productivity, improve customer relations, and drive innovation—all things that can give brands an edge over rivals, right?
But what if AI renders many of those advantages moot?
That’s the question that Gavekal Research Chief Executive Officer Louis Vincent Gave asks in a note Wednesday. And it’s meaningful for investors who are trying to determine the long-term value of stocks.
Take productivity. If AI makes items significantly cheaper to produce, consumers can buy more of them. But if they get too cheap, suddenly a status symbol becomes a commodity.
Gave cites the example of TVs, which people now buy without much thought to the brand, and he warns that the same could happen to cars and other products. If people no longer feel attached to brands, that reduces the premium the producer can charge. This “presents the first challenge for anyone attempting to value companies today, since a meaningful part of many companies’ residual value is inherently linked to the strength of their brands,” he writes. “And if this is true for cars, could it also prove true for Procter & Gamble, Unilever, Nestlé, Budweiser or L’Oréal?”
Innovation isn’t safe either. Major companies have protected their brands through research and development. “However, thanks to AI, the cost of developing—and legally defending—new products may be collapsing before our eyes,” Gave writes. If AI is as effective as its promoters hope, then surely it can quickly come up with products on par with what the best R&D teams produce.
Nor can companies use their war chests to advertise their way out of the problem. The shift to online spending means that, in many cases, one influential social media post is more effective than a full-page ad in a major news outlet.
Moreover, if consumers have AI agents find and purchase products for them, that cuts out the need for advertising entirely. Bots will make their decisions based on other inputs they collect as they crawl the internet.
All of these are crucial questions at a time when demographics are swiftly changing too. There are fewer young consumers around the world, and the population-growth hotspots are now in Asia.
“India and China each add roughly 30mn new consumers to the global economy every year, while Vietnam, Bangladesh and Indonesia each add another 5mn, and Malaysia, Thailand, the Philippines and Pakistan contribute a further 2 million to 3 million apiece,” Gave writes, meaning “the obvious question is whether the same companies that have grown cash flows so impressively over the past 30 years will continue to do so—or whether those cash flows will emerge elsewhere.”
For now, though, nearly all the world’s largest companies have only minimal exposure to the boom in Asian demand.
“The 2010-2025 period was an extraordinary era for growth stocks,” he concludes. “Global brands, multinationals and mega-cap technology plays all benefited from the launch of exciting new products, from smartphones to AI, alongside globalization, equity re-ratings and multiple expansion…But instead of globalization, falling interest rates and rising consumer disposable incomes, the coming years may well bring the opposite.”
The S&P 500 has returned well over 500% since 2010, but that will be hard to replicate if the tailwinds Gave cites disappear. Maybe ChatGPT can figure out a solution.
Write to Teresa Rivas at teresa.rivas@barrons.com