The panic attack - how listed companies should (and not) react to AI

Some thoughts on this very good piece in the FT (https://on.ft.com/41nJBYW) on the shareholder impact when it comes to #ai and how companies should / should not react.

1. The first thing to remember is investors / markets can be very skittish, particularly when it comes to topics such as AI where there is little knowledge. Some may remember that #Alphabet saw $100bn+ wiped off its market capitalisation in two days post-a botched AI presentation in Paris (#Baidu suffered a similar effect when it did the same). It is worth remembering Alphabet has regained all those losses since, demonstrating how investors' sentiment easily moves onto the next data point. Companies should not get obsessed by short-term share price moves.
2. That leads onto the next - and most important - point, namely that companies must not panic, especially when it comes to issuing statements on what AI means for them. The example of #Chegg seems to have prompted several companies to rush out with investor presentations to reassure the market (#Pearson and #RELX for example). I understand the short-term drivers and impulses to do these calls but the risks are (1) short-term noise is confused with long-term trends (2) statements ./ promises / expectations are made which cannot be undone and become a burden later and (3) related, when it comes to AI, it is an area subject to misinterpretation.
3. One question companies need to do is step back and think about how long AI is likely to have an impact on business models (if it does at all). Chegg seems to have dominated everyone's thinking (and it is worth noting that the company's decline in revenues in Q1 was not down to AI) but maybe the example of Alphabet and #Microsoft when it comes to #Search is perhaps a more appropriate case study. After the initial hype around the potential loss of #Google's dominance, things seem to have returned back to normal, even if AI has given Microsoft's Bing business a name recognition boost. When it comes to the vast majority of businesses, change is likely to take a long time to come.
4. That is important because the direction of travel is not necessarily the most important factor but the speed at which the change happens. What everyone forgets in the case of business models in Media that collapsed such as Classified Directories and Regional (and, to a degree, National) Newspapers was that the speed of change was the thing that destroyed their models because the appropriate companies did not have time to react and / or were rushed into poor strategic decisions (which goes back to point 2).
5. But why should change not come more quickly? Well, I have a major piece coming out on the impact of AI (for subscribers only) so I will not say too much here but one general point is that a fallacy often made is that the rise of Technology is inevitable as seen with the dominance of the major Tech giants. What gets forgotten is that the rise of Alphabet, #Meta and (to a lesser degree) #Amazon in particular, and second tier players such as #Uber is that was the result of a fortuitous combination of trends coming together namely (1) the ultra-low interest rate policy post-2008/9 and almost unlimited supply of free money (2) a ultra-tolerant political / regulatory environment; and (3) the mass roll out of 4G. There was nothing inevitable about their success. The same is likely for AI.
6. Moreover, while everyone has focused on the risks / opportunities that AI is likely to bring, what has had far less attention is the very significant obstacles AI has to overcome in order to succeed such as (1) the reduction of capital available for Tech funding in particular (2) the scarce talent, much of which has been acquired by the major firms (3) the interests of 'Big Tech' when it comes to AI and (4) - and most importantly - the rapid moves by Governments and Regulators everywhere to bring in rules around AI, which threatens to restrict its development both in direct and indirect ways (for example, Governments can make it clear they will have zero tolerance for funding for unauthorised AI development - as sanctions against Iran has shown, targeting the financial system is a very effective way to enforce policy).
7. Finally, a shout out to #citi whose Media and Tech analysts have come up with a report looking at the potential impact of AI on the various sub-sectors and companies within Media and Tech. I have to admit I do not agree with all their views but it is important to at least to start the debate. However, I go back to what I hope comes back to a common theme, namely companies should not panic on the topic but instead take a deep breath. Or, as Napoleon Bonaparte commented, "Take time to deliberate, but when the time for action comes, stop thinking and go in."

As usual, this is not investment advice.