Will physical AI reshape labour markets in ways that support asset prices?
By reducing labour scarcity, bringing down the costs of production, raising productivity and improving the returns on capital, humanoid robots and other forms of physical AI will likely lead to stronger income growth and translate into higher asset returns. Recent history shows that breakthrough technologies, such as smartphones or TV streaming, were initially dismissed or downplayed as markets failed to see the creation of revenue and wealth that would ensue in the years ahead. Themos Fiotakis, Global Head of FX and EM Macro Strategy, believes market participants are underestimating the positive effects of physical AI in the same manner. There is also substantial concern that the displacement effects of AI, that some companies will no longer be profitable and professions will disappear, will counter its benefits, which Fiotakis finds misguided.
Physical AI, which encompasses autonomous vehicles and drones, as well as humanoids, has so far emerged as a productivity and efficiency enhancer across labour-intensive and asset-heavy industries, while its disruptive effect has been more gradual than markets have feared. Its benefits are most visible in logistics, industrial distribution and manufacturing in the US. Airlines, agribusinesses and environmental services are deploying physical AI to cut costs and improve processes. In Europe, telecom services, energy and transportation sectors are using robotics to increase oil recovery rates, improve network connectivity and reduce the cost of last-mile delivery in logistics.
Another market concern is increasing wealth concentration as wider adoption of robots shifts the share of income from labour to capital. But in a system where asset ownership is shared through public markets, investment firms and pension funds, economic gains will be broadly shared even if more accrue to capital, Fiotakis thinks. At the same time, lower production costs and ample availability of goods will translate to higher affordability and aggregate welfare gains, which in turn will boost wealth creation and asset prices.