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AI is infinitely complicated. This is the first time in history that I can remember that all the groups disagree . People with a modest knowledge of AI all disagree. Is it going to destroy humanity or will it make us all sit on the beach and be waited on? And then you go up to the level of Nobel Prize winners and they disagree too.
At every level of sophistication, there is great disagreement about how AI will turn out . Second point. AI is incredibly important. It will change our lives. Now, whether it will kill us all or make us rich is part of that guessing game, but it's obvious to everyone that it's an important idea. And there are several things to say about AI.
But the most interesting thing for me is that when a new technology emerges, the first to adopt it often reap considerably more benefits than normal. Their profit margins become wider than usual. Intermediate adopters may have a slight advantage. Those who adopt late bring the market back to equilibrium.
And if I look back and observe previous cycles, what I have to conclude is that when the smoke clears, any new technology is simply a cost of doing business. Let me focus on the asset management business, which I know a lot about. I remember not too long ago when we had to make an effort and buy our first mainframe computer, a minicomputer.
It occupied a room the size of this one I'm in. It generated enormous heat and processed data quite quickly, and we had a competitive advantage for two or three years until everyone gritted their teeth and paid for their minicomputers. And then it became a cost of doing business. Everyone in the investment management business had a computer.
TRUE? I assure you that not everyone had higher profit margins than before. Profit margins returned to normal. The return on capital , which is the central engine of capitalism—how much money you make on your investments—has been remarkably stable for a couple of hundred years. And after everyone had bought their computers, all you got was a modest return on the cost of the computer.
That was it. You had to put more assets into the money management game. You got the same average typical return on them, and the early adoption factor had disappeared. Well, think about AI. Those who adopted professionally first have a huge advantage. But if we fast forward a few years, everyone is using AI, right?
Everyone is paying for the service they need. It is now that point in the future, the cost of doing business. It will not move profit margins or total profits significantly above normal. That effect only occurs in the early adoption phase, where we are now. Once everyone has adapted, it's just another cost of doing business.
It's obvious. I think it's irrefutable, but you'd never guess it from current conversations. There are many other problems and possibilities with AI that we haven't talked about, but that's the one I think I understand best. Do you think it makes any relative difference in the market? I mean, you mentioned that we've had this group of huge companies that have dominated the market for a long time.
Do you think all this benefits the average company compared to them, or does it reinforce their dominance over others? Have you thought about how that works? Yes. That's what I do. I think about these things all the time. But I don't think it will be, it won't be quick. You know, the average company won't catch up easily or quickly.
And there may be a lot of suffering along the way. But this much is clear. If you go back five years, you see a world where the " Magnificent Seven" basically represent seven monopolies, seven quasi-monopolies, semi-monopolies, or at worst, duopolies and oligopolies, right? A handful of firms dominating the industry.
Um, you had a glimpse of competition in the cloud. But you had three of them converging. And they got along very well. Whether they called each other on the phone, or more likely, they deduced that if they acted discreetly, the enemy would n't start a price war, and they did. So the three of them became a well- behaved oligopoly and made a lot of money.
That's ok. But now, we face a completely different world, where the seven, plus 15 others around them, are boasting and beating their chests saying, "My 120 billion this year is better than your 82." Everyone wants to win the AI war. They envision that those who are first to reach a new technological level will become billionaires, and so on.
Or so they believe, and they intend to be the first. So we have gone from a world of monopolies to a world of brutal competition. And we'll be stuck there for years, and there will be blood in the streets because these are aggressive, no-holds- barred companies with a lot of money, and they're heading straight for a clash.
And it will be exciting to see it. But this is different, dear viewer, it's different from everything we've been saying for the last 20 or 30 years while we watched Amazon inherit retail and Tesla electric vehicles, and so on and so forth.
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