Nassim Taleb says investors should keep a close watch on one stock sector that will likely witness a wave of bankruptcies amid the proliferation of AI.
In a Bloomberg interview, the author of the “Black Swan” begins by saying that pioneers in transformative industries often fail to emerge as long-term winners.
“Again, it’s structural. Historically, if you look at history, the car companies, airline companies, and of course, the personal computer. If you look historically, those who started the business, the pioneers, are not necessarily the winners. As a matter of fact, they’re probably more likely to be the losers.”
Taleb says enthusiasm around current AI names does not guarantee their dominance.
“So now people take names of AI and say, ‘OK, these are going to win. Let’s invest.’ I’m sure someone’s going to make a lot of money in both software and hardware related to AI. But it doesn’t necessarily have to be these companies, because you have a lot of instability, most technologically, and of course, geographically with AI.”
Looking beyond AI, Taleb says the software sector is particularly vulnerable, highlighting that there will “definitely” be bankruptcies in software names. He also says that as investors become wary of mega-cap tech and software, the capital rotation could “eradicate” the gains seen in the stock market over the last few years.
“Plus, the effect on the stock market, as you realize, the previous rally that we had was driven by a very small number of names. And now we probably have some broad names, rebroadening effects on redistribution. But a lot of the gains in the stock market are going to be eradicated by that.
So this is why we’re at a juncture of a lot of instabilities across many domains.”
Taleb’s view on software echoes JPMorgan Chase CEO Jamie Dimon’s call that the tech sector will likely get hit the hardest once the credit cycle turns because of AI.
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