Markets Look to Big Tech for AI Payoff

Author: Bloomberg Television · Watch on YouTube

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Original language: English

Original video: Markets Look to Big Tech for AI Payoff · Channel: Bloomberg Television · 09:37 · Watch on YouTube

Topics: Enterprise AI applications, AI infrastructure and hardware, Markets and economy

Summary

Drew Matus argues that markets and the wider economic outlook are unusually dependent on expectations for artificial intelligence, making the concentration of economic activity a concern beyond stock-market concentration. He says AI’s long-term promise is to improve labor quality and help people answer more questions, while the employment effects remain uncertain and are not yet evident as job losses in the data he discusses. Companies are still learning how to allocate AI tools effectively, and investors should watch how spending translates into actual near-term investment given limits on equipment, labor, and construction capacity. On monetary policy, Matus expects markets mainly to want reassurance that the Fed chair remains focused on inflation, while uncertainty about potential growth makes the eventual stopping point unclear.

Key points

Microsoft, Alphabet, Amazon, and Intel are due to report earnings; together, they account for about 15% of the Nasdaq 100, which had fallen roughly 7% that month.
Matus sees economic concentration around AI as potentially more concerning than concentration in equity markets.
Investors are looking for evidence that AI can support long-term economic growth, but the effects on jobs, profits, and the broader economy remain unsettled.
Matus sees AI’s potential to raise labor quality as a source of long-term optimism, allowing more people to perform knowledge work effectively.
He says AI-driven job losses are not showing up in the data he describes; some heavily affected industries are hiring more people.
Firms are likely to distribute different levels of AI tools according to employees’ roles rather than rely on one universal tool.
Investors should distinguish between announced spending plans and what companies can actually spend over the next several months, given constraints such as equipment, workers, and land.
Matus says the Fed’s policy path is difficult to judge because potential growth is uncertain; markets chiefly want to hear that inflation remains a concern.

Chapters

Start	Chapter	Summary
00:00	Big Tech earnings and market concentration	The discussion opens with upcoming earnings from four major tech firms and Matus’s view that the economy, not just the stock market, is concentrated around AI.
02:08	AI’s promise for labor quality	Matus explains why he is optimistic about AI’s potential to broaden workers’ capabilities and improve productivity over the long term.
04:15	Employment effects and company adoption	He says AI-related job losses are not apparent in the data he discusses and describes how companies may tailor tools to different roles.
06:54	AI spending, credit, and practical constraints	Matus says AI-related borrowing and spending merit attention, while noting that announced investment plans may be limited by real-world capacity.
08:34	Inflation and the Fed’s next steps	The conversation closes with Matus’s view that markets want reassurance about inflation and that uncertainty about potential growth clouds the Fed’s stopping point.

Quotes

that kind of macroeconomic concentration is actually probably even more disturbing — 01:03

that is the promise of AI is that we have yet another boost in labor quality — 03:10

It’s still on the horizon. — 04:15

it’s certainly something that bears watching. — 07:25

They just wanna hear that he cares. — 08:34

Concepts and entities

Artificial intelligence, CapEx, Nasdaq 100, Drew Matus, MetLife Investment Management, Microsoft, Alphabet, Amazon, Intel, ING Bank, CoreWeave, Kevin Walsh

Full transcript (original language)

00:00 Sure to be another roller coaster week for the markets with more big tech firms reporting earnings. Microsoft and Alphabet kick off things on Wednesday, followed by Amazon and Intel on Thursday. Those four companies alone count for about 15% of the Nasdaq 100, which has dropped some 7% this month. Joining us now, Drew Matus, chief market strategist for MetLife Investment Management. Drew, great to speak with you. And let’s start there if I could. This issue of of concentration, one that we’ve talked about many times before on this show. Still, a handful of companies responsible for so much of of these markets, and we saw what happened with with tech

00:32 stocks this week. How are you thinking about concentration in the context of the market moves we’ve seen in recent days? Well, I I think when we think about concentration, it’s actually economic concentration. Right? I mean, we… What we have is we have artificial intelligence is driving kind of the equity market. Artificial intelligence is driving the CapEx spend. The CapEx spend and the equity market wealth gains means the consumer spending money. But when you kind of, like, pull back all the the, you know, parts of the onion, what you’re getting back to is this belief in AI

01:03 is driving the entire economic outlook. And I think, you know, that kind of macroeconomic concentration is actually probably even more disturbing than kind of the market concentration that we’re seeing in the equity space. When you look at these earnings reports, what are you looking for? What matters the most? Is it is it guidance? Is it caps… CapEx expenditures? What are the things that are really gonna stand out? You know, I I I hate to kind of be this way, but, like, I I don’t know because, you know, you’ve seen firms know it until you see it. Say, hey. You know what? We’re cutting CapEx, and people are like, we hate that. And

01:35 then you see firms saying, like, oh, we’re boosting CapEx, and for… The market goes, oh, we hate that. So I don’t actually really know what people want from these people. I think what most people who are watching the markets wanna see is, you know, some evidence that the AI story is playing out in ways that will be long term supportive of economic growth and economic activity. And right now, kind of in the macro space, we are still having fights over kind of the impact on on jobs, the impact on profits, the impact on the rest of the economy. And, you know, I I don’t think we’re gonna

02:08 get that settled anytime today or anytime next week. So, you know, what people want, you know, honestly, if I gave you an answer today, it would probably change by the people… By the time people got to see the earnings next week. Fair enough. Nice to know I’m not the only one with you. So I actually love that answer. I wanna kinda, like, stay in this general theme here, and I talked to a bunch of strategists last week who seemed very bullish despite the fact that we saw this route that was taking place in the latter half of of the week. I wonder what accounts for that as we see the kind of anxiety surrounding AI or at least a sense that there

02:40 has to be some proof in the pudding here in the months ahead. How there can still be this relentless bullishness to to the market? What what do you say to that? Is it because the market is bigger than AI? Is it because of optimism about where all of this is is headed? What accounts for the bullishness that we see kind of pervading a lot of strategists on Wall Street? Well, so I’ll tell you. In the long term, where where we’re most bullish, right, with regards to the whole AI story is what it could mean for labor quality in The United States. And and labor quality is where the computer age showed up. Right? And that

03:10 what happened is, you know, everyone… You know, people were bad at math and then all of a sudden they had access to a computer program that made, you know… If they understood how to do math, but really kind of were just maybe a little sloppy with kind of adding things up, all of a sudden that didn’t matter. And so labor quality improved. And that is the promise of AI is that we have yet another boost in labor quality where people don’t have to be experts at things to kind of get to a a… An answer that’s… You know, in the business world a lot of times, you know, if you get the 90%, you’re probably pretty good. And now you can get a

03:44 lot people who can actually get you to that 90% mark. And so you broaden kind of the spectrum of people that you can bring into the equation. And so, you know, you can answer a lot more questions a lot more quickly. And if you’re in the information business, you know, all of a sudden, that begins to look very promising in terms of what you might be able to do in the future. Is that still a prospective thing as you look at the earnings that we’ve gotten so far? And, yes, it’s early innings of of the earnings season. Are we seeing indications from the companies who have reported that it is making a notional difference to the way that

04:15 they operate, the way that they’re hiring? Are we seeing that kind of radical transformation that you’re describing in the labor force starting in earnest already, or is that still something that’s on the the future horizon? It’s still on the horizon. You know, all the stories, the negative stories about AI and jobs, you know, you’re not seeing it in the data. Right? What you’re seeing in the data is actually in certain industries that are most heavily impacted by AI, you’re actually seeing them hire more people. And that makes sense to me because I’m in the knowledge business. If you give me a tool where I can actually answer the top 100 questions I have today, guess what? Tomorrow, I’m gonna wake up and I’ve got 200 questions about the

04:49 answers that you gave me to the first 100 questions. And so I actually need more people. I need, you know, I need to think of my people as kind of, you know, an orchestra. Right? And they’re leading the orchestra and maybe the individual maybe the individual instruments have changed, but the the orchestra has gotten bigger and I can do more with it with the same number of people. Or, you know, even better yet, I can add a person or two and actually get a much higher return on those two people. They become more valuable and and it’s actually really good for The US labor market long term.

05:20 Are we getting to the point where companies are… They’re stopping just throwing everything into the AI bucket? They’re trying to be much more discerning about where they’re putting that money, where they’re investing in tokens, and where they’re investing in people. I… We just did an interview, for a forum with the CTI of ING Bank, and he was saying, yes. They do have a lot of AI on the back end, but customers still don’t trust it. So for a lot of the products, they’re rolling out a lot of the front facing things. When it comes to people’s money, they’re still really reticent to do something that doesn’t have

05:50 that human element. Where is that balance, and is that something that you can see when you’re looking where to put your money in these different companies? Is that something that investors are looking for smart use of AI, not just early adoption? Well, so that’s the balance that matters, and and firms are figuring it out. And I think, you know, that’s gonna play out over a long period of time. It’s gonna be firm by firm, and eventually, you’re gonna add up to it being kind of the standard. And know, not every employee necessarily needs all these tools or some of them can use

06:20 lower end tools and some of the people that you, you know, we all know. Right? The people you go to when you have a problem with your computer, maybe they need the the bigger tools. Right? The better tools. And so firms are gonna figure out kind of, you know, what is the best math for distributing the the high quality tools. Right? I have tools on my desktop because I do a lot of economics that most people in my company don’t have. Other people who are doing trading and asset management parts of… That I don’t do have other tools for themselves. And I think you’re gonna see companies begin to think of all these AI tools, not as a singular AI tool, but as

06:54 kind of what tool do you need to do the job much like we do with most of the other software we use. I think what’s been animating conversation markets in recent days has been this one about a bubble and if we’re in one yet or there’s signs that that we’re in one. Maybe I could pull back from that and just ask you about what we’ve seen as this kind of insatiable demand from a lot of these companies to to take on debt, to to spend money, to buy compute, to buy access to cloud infrastructure. I think CoreWeave was something that kicked that off just a couple of weeks back. Are are you worried as you look at the credit market broadly that we’re reaching a point at which there’s some

07:25 unsustainability to this? How concerned are you about what you’re seeing in in that side of things? Well, it’s certainly something that bears watching. I mean, that’s part of the reason, you know, at MetLife, we’ve got so many people looking at individual companies. Right? And and they’re and they’re very, very careful about kind of tracking where all the money is being spent and and what’s going on there. I I think that when you think about the amount of spend, one of the things from a macro perspective you have to think about is there’s only so much you can spend in a given year. So, like, you might wanna do something. You might wanna build, you know, 20, you know, extra data centers or something, but

08:00 you have to find the people, you have to find the equipment, you have to find the land. Like, this is not necessarily something… A lot of the numbers we’re hearing are, hey. This is what we’re gonna spend. And the real question that should come back to them is how much are you gonna spend in the next three, six, nine, twelve months? You know, we’ve all tried to do something in our house where it’s like you wanna fix your kitchen, and all of a sudden you can’t get a piece of the kitchen for six months and then you’re stuck. Right? Now take that and put that in a macro perspective with much more complicated equipment. And, you know, some of the numbers, you know,

08:34 from a macro perspective probably aren’t gonna happen this year even if companies say they wanna spend it. Drew, we’ve only got about a minute left before I let you go. I feel like the two things we’ve been leading up to constantly are the midterms and another Fed decision. That’s right. We’re expecting… It’s Fed week. We’re expected to hear from Kevin Walsh. I think most everybody is expecting everything to stay as is. But what do you need? What do the markets wanna hear from Walsh in terms of price stability as inflation is still running high? They just wanna hear that he cares. You know? It’s it’s it’s kind of, I’m not

09:06 sure if that’s a sorry state of affairs or not, but, you know, he cares about inflation. And, you know, the the problem for Kevin Walsh is that he doesn’t know where he wants to stop. Right? No one knows what the stopping point for this Fed is because we don’t really know what’s going on with potential growth. There’s a lot of other factors going on. And so, you know, the the analogy I’ve been using is he’s like the pizza delivery driver who can’t see the numbers on the house. Uh-huh. Right? And so he’s gonna drive really slowly down the street, and that means you’re probably gonna skip this meeting, probably go in December when they can kind of revamp their estimates and, you know,

09:37 lather, rinse, repeat.