(Kitco Commentary) - 2024 could be called the year of AI technologies and everything related to them. Not only did the shares of companies that make hardware skyrocket, but also those that develop the product itself.
The problem is that the channels to monetize it are still unclear. Big Tech companies like Microsoft, whose stock price reflects both optimism and skepticism in such ventures, are investing billions in an area that may not be profitable after all, or it is uncertain yet when it will be.
The companies have made this transparently clear in all their recent quarterly reports. Investors initially worry about the uncertain outlook but then quickly forget about it and buy back in.
Of course, this cannot last forever. Either the company will find a way to monetize this sector soon, or it could eventually break down investor confidence, prompting a stock valuation revision.
Meta, Mark Zuckerberg's company, already faced a similar situation with the metaverse: billions of dollars were spent with little to show for it, leading to significant cutbacks in the initiative.
Looking ahead to next year, quantum computing is unlikely to become the next big thing. Some claim it will be the “new AI” and change the world forever. Maybe so, but not today.
Keep in mind that A) the valuations are already extreme, and B) practical applications are still lacking, and finally, it is unclear when the actual technology will be ready for use, as it takes years to develop.
Instead, the focus could shift back to defense companies. Even if Trump makes good on his promise to resolve the conflicts in the Middle East and Ukraine, it still makes sense.
This is because Trump believes that NATO countries should increase defense spending to 5% of GDP, which could easily translate into billions of dollars in new contracts for Thales, Lockheed Martin, Boeing, etc.
The problem is that budgets are not unlimited. Increasing one area of spending means cutting others or raising taxes, which in many countries, especially in Europe, are already extremely high.
It is worth noting that the 32 NATO members will already spend nearly $1.5 trillion on defense this year, but only 23 countries have reached the previously agreed 2% of GDP spending target.
If this idea goes through, it could hurt the economic growth of NATO countries. Meanwhile, the United States, which accounts for about 42% of global arms production and supply, stands to gain.