Maybe there's an argument that a lack of rising profit margins in non-tech companies is a bad sign for AI, but this article doesn't make it. Why can't we have a red-queen's race where non-tech companies are implementing AI, but it's not increasing the total profits of those sectors, just meeting rising customer demands/fighting over the share of existing profits? (Never mind that if you look at that chart, profit margins aren't static to begin with, so you can't isolate AI impact from normal fluctuation).
Now, on the first order point, I agree that non-tech companies seem to be taking longer to see results from AI, even if the argument was bad.
I work on SaaS for the logistics space, and I feel like prior to the end of 2025, almost all the discussion about AI for logistics was vaporware, starting this year, companies are actually trying to deploy agents, and we'll start finding out what the ROI is later this year or next.
Article is authored by a private credit firm who assigned absurd valuations to AI infra (see below as an even super recent example) - what is their intention by writing this (is it due to the AI fear narratives around software investments they also hold that drive ppl to withdraw their holdings in Apollo?)
I don't understand why anyone insists that this needs more time. None of what we've seen in the past few years is new tech. It's more money and hardware thrown at the problem than ever before for diminishing returns.
The market has clearly spoken. Knowing what you're doing is much more valuable than just the doing. That still requires humans. This AI winter has already begun.
"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.
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.
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.
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.
Maybe there's an argument that a lack of rising profit margins in non-tech companies is a bad sign for AI, but this article doesn't make it. Why can't we have a red-queen's race where non-tech companies are implementing AI, but it's not increasing the total profits of those sectors, just meeting rising customer demands/fighting over the share of existing profits? (Never mind that if you look at that chart, profit margins aren't static to begin with, so you can't isolate AI impact from normal fluctuation).
Now, on the first order point, I agree that non-tech companies seem to be taking longer to see results from AI, even if the argument was bad.
I work on SaaS for the logistics space, and I feel like prior to the end of 2025, almost all the discussion about AI for logistics was vaporware, starting this year, companies are actually trying to deploy agents, and we'll start finding out what the ROI is later this year or next.
Article is authored by a private credit firm who assigned absurd valuations to AI infra (see below as an even super recent example) - what is their intention by writing this (is it due to the AI fear narratives around software investments they also hold that drive ppl to withdraw their holdings in Apollo?)
From last month: https://peinsights.substack.com/p/apollo-and-blackstone-clos...
I don't understand why anyone insists that this needs more time. None of what we've seen in the past few years is new tech. It's more money and hardware thrown at the problem than ever before for diminishing returns.
The market has clearly spoken. Knowing what you're doing is much more valuable than just the doing. That still requires humans. This AI winter has already begun.
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.
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.
What does this look like for any given company? Which margins will you be crushed by for not adopting?
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.
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.