AI on the offensive

There is a new narrative in the market, with its genesis in AI. The agentic economy narrative is hitting hard, partly because companies valuations are high, and AI is decreasing the visibility of future cash flows. The key metric has changed: growth rate is no longer the most important metric, it’s duration. How far into the future are the cash flows of consumer cyclicals, or software or healthcare services companies, visible and solid. You never had 20/20 into future cash flows, but you could model 10 years and assume a terminal value. Now you can’t. The disruptor is so strong, that is forcing everyone to adjust their models. If you are a leveraged player (hedge fund, PE) you might want to reduce gross exposure (decrease leverage), and probably your investment horizon has shortened. At company level, there’s a tradeoff, shown in the chart below. Your business might be under attack from agents, but you have the option to dramatically reduce your headcount to adjust for the missing revenues. Up to a point. Companies will need to reinvent themselves or will disappear. And the same goes for employees. And the adjustment might be hard, with tough economic consequences. At the end of the journey, there may be abundance for everyone. But there might be a desert in between.

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