Despite the ongoing conflict in the Middle East there hasn’t been a stock market crash. This could change if the current ceasefire doesn’t last. However, for the time being at least, investors appear relatively calm.
But some believe there’s another threat to global equity prices, one that’s already starting to touch our lives. Could the rise of artificial intelligence (AI) really lead to a devastating stock market crash, or has the threat been exaggerated?
Doomsday?
One firm has outlined a scenario – not a prediction – in which machines replace a huge number of workers, unemployment soars, consumer spending weakens, the mortgage market goes into meltdown, and many banks collapse.
Nobody knows for sure whether the “human intelligence displacement spiral” as outlined by Citrini Research will become a reality. However, if it did, it expects the S&P 500 to fall 60% from its peak.
On the other hand…
However, I’m more positive. History shows that people and corporations have adapted to similar challenges before. It’s often said that we are starting a fourth industrial revolution. And to the credit of humankind, we’ve managed to survive the previous three.
There are loads of examples I could use to illustrate how life continues as normal in the face of radical change. Here are just two. In 1920, 1.19m people (10% of UK males) were employed in the coal industry. In 2025, it was 267. Despite this, we can still heat our homes and run a railway network.
And more recently, traditional high street retailers have overcome the threat of the internet. Yes, some have gone bust but many have survived by embracing the challenge.
As with nature, neither the strongest nor the most intelligent survives in the world of business. Instead, it’s the most adaptable. Remember, Netflix started life in 1998 as a DVD rental company. IBM used to make computers.
A visionary to invest in?
And Elon Musk probably thought he had joined a car company when he first became involved with Tesla (NASDAQ:TSLA) in early 2004. Now, as a great example of adapting to survive, it’s being repositioned as a robotaxi/robot/energy storage business.
Personally, I’m unconvinced that we need to replace taxi drivers. And will humans be stupid enough to let themselves be usurped by robots? I don’t think so.
But many people love Musk’s visionary approach, which — I suspect — is the primary reason why Tesla’s stock trades at an eye-wateringly high historic earnings multiple of over 300.
Of concern, vehicle sales are falling and inventories are growing in the face of intense competition from around the world and the phasing out of US tax credits.
Final thoughts
Of course, unlike the technological advances associated with previous revolutions, AI’s able to undertake both physical and mental tasks. It’s likely to be our toughest challenge yet. And inevitably, there will be lots of losers. But could Tesla be one of its winners? Probably. But there are no guarantees.
However, despite analysts reckoning the company’s 30% undervalued, the stock’s not for me. Investors appear to be placing huge value on some unproven technology.
Fortunately, for those of us looking to build long-term wealth via the stock market, there are plenty of other listed businesses that — I believe — have more chance of succeeding, including ones offering better value than Tesla. That’s why I remain optimistic.
