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September 29, 2025 – AI is deemed by many to be the biggest economic game changer since the invention of the airplane. Maybe so, but PCs, the Internet and the iPhone didn’t move the productivity needle in any discernable way over the past 50 years. No doubt, AI will make us smarter, and some of us more economically productive. But before labeling the next decade as the golden age of productivity, we need to see some evidence of noticeable change. Universal adaptation of AI as a core business process is likely to be expensive and more time consuming than optimists suggest. In the meantime, our economy will continue to grow the old-fashioned way at the old-fashioned pace. That’s not so bad.

//  by Tower Bridge Advisors

If you look at a graph of productivity for the last 45 years, it would look like a zig-zag sideways pattern ranging between zero and 5% with few exceptions, most relating to brief spikes at the end of recessions when output rises faster than employment for obvious reasons. The PC came on the scene in the early 1980s growing in importance for most of the next two decades. One might think of the PC as the ultimate engine of productivity improvement. But it wasn’t. Neither was the advent of the Internet in the mid-1990s. Robots replaced workers in manufacturing plants but the output per man hour didn’t change significantly. Now we enter the AI era. A computer will replace the order taker soon. Call centers will be manned by non-humans as well. There is no doubt that technology displaces workers. But does it make workers more productive? One would think so.

Look at retailing. Zombie malls reflect hundreds of store closings as we all enjoy the convenience of shopping from our living rooms. Store salespeople and check-out clerks are displaced. But drive down the highway and look at all the distribution centers replacing those zombie malls. 1,000 yellow cabs in New York have been replaced by 5,000 Uber drivers. Look at the masses of Amazon and UPS trucks delivering to you what you would otherwise buy in the store. Don’t mistake convenience with enhanced productivity.

Don’t misunderstand me. What I am trying to say, is for all the decades of promises I have listened to in this economic world we live in, I try to look at the reality, not the hype. There is no doubt AI will change the way we live just as PCs, streaming, smartphones, and robotics have done in the past. But do we produce more today? Can we attribute the economic revenue we produce directly to the technological tools at our disposal? My accountant could produce more tax returns because the computer helps to enter data more easily. But the gross number of returns produced in this country relates to population, not technology. And if TurboTax allows more of us to do our own returns, what then?

Technology displaces workers. To the extent the remaining workers can produce more with less, it enhances productivity. That broadens the pie and allows economic growth. But what happens to the displaced workers? If they become Uber drivers or Amazon delivery people, is there as big a change in overall productivity as one expects?

Last week, Doug McMillon, CEO of Wal-Mart said prophetically that in 5 years, when Wal-Mart is roughly a third bigger than it is today, it will have the same sized work force that it has today. Wal-Mart will be more productive. McDonald’s can probably make the same statement. Others, not so well managed, will still be able to use AI features to increase productivity. But that doesn’t mean national productivity will increase at the same pace. Granted, companies that don’t keep pace will be left behind. Look at the Zombie malls I mentioned earlier. Right now, most of our Mag 7 companies are spending hundreds of billions of dollars on chips, data centers, power plants, etc. to be able to help companies become more productive. To date, the revenues produced don’t equal the cost. Over time, I suspect they will. Without getting too technical, the chips designed for the PC revolution, microprocessors that worked serially in computation, are being replaced by GPUs (graphical processing units) that by working in parallel are much more powerful. This transformation is still in the early stages. Undoubtedly, I will get information faster. It may make me smarter, but will it increase national productivity?

Industrial revolutions in the past improved productivity. Cars, then trucks moved goods faster. The telephone replaced the telegraph. Planes allow movement of people and goods with much greater efficiency. Won’t AI do the same? The jury is still out. Look at social networking. We almost all do it. It changes the way we communicate (not always for the best). But does it move the productivity needle? It certainly has created lots of jobs for Facebook, TikTok, and X. But I doubt whether the billions spent has done much to increase production per man hour. Some AI dollars will enhance productivity. Some will be misdirected. Harmful uses may subtract from productivity gains.

Why all this discussion? Because one measure of GDP growth is population growth time productivity improvement. We know population growth is going in the wrong direction. Births are down, death rates are rising, ex the impact of Covid, largely due to aging, not only in the US but also around the world. Immigration has dropped sharply. Population shifts just in the last two years, have knocked about 0.3-0.4 percentage points off of GDP. That doesn’t sound like a lot but if the national goal is to take normalized growth from 2-3% to 4-5%, it will require a massive and sustained boost in productivity. That may or may not happen. But the average gain for 2025 to date is 1.2%. If AI is the productivity kicker of the future, its impact hasn’t been felt yet. Also worth remembering that while those closest to AI and its improvements will see productivity improvement in the coming years, productivity includes those Uber drivers, construction laborers, housekeepers and small business operators.

None of this suggests we aren’t growing. Population is still rising and productivity gains remain within the range of the last 50 years. There is no reason to expect growth to stop or even slow although lower immigration and tariffs might be a temporary headwind. Maybe AI will live up to its hype and expand productivity in ways not seen for more than a century. But let’s not get too excited by the hype until we see some signs that technology is making the kind of impact the invention of trains, planes and automobiles made more than a century ago.

Today, Kevin Durant is 37. Andrew Dice Clay turns 68.

James M. Meyer, CFA 610-260-2220

Tower Bridge Advisors manages over $1.3 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: « September 25, 2025 – Fed Chairman Powell noted this week that while equity prices are “fairly highly valued,” this is not a time of elevated financial stability risks. While the U.S. accounts for the majority of the largest companies in the world, our trading partners are also dealing with tariff impacts, inflation, economic growth and interest rate policy setting. The escalators at the United Nations may be glitching, but the U.S. economy, corporate earnings and equity markets around the world have continued to trend higher with a few bumps along the way.
Next Post: October 2, 2025 – The stock market hit a record high yesterday—despite the government shutdown—which is a testament to the powerful influence of AI, creating a speculative frenzy that masks a cooling labor market and two-tiered, consumer-driven economy. This dichotomy poses a significant risk, making a disciplined and diversified investment strategy essential. »

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  • December 1, 2025 – This week will see the release of economic data delayed by the government shutdown. But it won’t be up to date data. That will come later this month. But all signs seem to indicate an economy chugging along at a measured pace with inflation still above target. Against that backdrop, the Fed appears likely to continue lowering rates providing further stimulus. With that said, there are few storm clouds mostly related to speculative and aggressive investing. This doesn’t seem to be the moment to take added risk. As Jim Cramer has said, bulls make money, bears make money and pigs get slaughtered.
  • November 24, 2025 – Market corrections can begin for almost any reason. This one’s birth was originated by fears that the AI hype got too extended, and in some cases, built on a base of too much debt. A rush to risk averse assets also sent bitcoin into a tailspin, perhaps causing those owning too much bitcoin on leverage to sell other assets including equities. Yet the economy chugs along showing no signs of a recession. Thus, we appear to be in the midst of a valuation correction, one that still may take a while to run its course.
  • November 20, 2025 – The last penny was recently minted in Philadelphia where the first one was minted over 230 years ago. The problem is that it now costs over three times more to make a penny than it is worth. There have been concerns that artificial intelligence data centers and infrastructure are also consuming more resources than the payoff may be worth. The technology sector has been declining over the past couple of weeks on these concerns. Nvidia allayed fears of a near-term AI bubble with positive guidance for the fourth quarter last night, although recent earnings reports from several retailers add to a cloudy overall economic outlook.
  • November 17, 2025 – Last week saw massive rotation out of technology leaders into value stocks long forgotten in this year’s rally. Tech investors were spooked by a growing chorus of concerns around circular investing and stretched balance sheets. Some of the fears are real and some probably exaggerated. Given the strong performance over the last two years, some consolidation was clearly called for. Is the correction over? There certainly hasn’t been any panic or capitulation yet. If one looks closely, the big companies doing the best, experienced only modest declines in their stock prices. Those whose promises might have been exaggerated started to pay the price. That purge probably has more room to go.
  • November 13, 2025 – Markets are trading near record highs, buoyed by the end of the government shutdown and strong corporate earnings, yet this optimism is tempered by risks from a cautious Federal Reserve, a potential AI spending bubble, and an increasingly strained consumer. Given this disconnect between high valuations and mounting risks, a pullback should be expected, reinforcing the need for investors to remain diversified and focused on high-quality companies that can weather a downturn.
  • November 10, 2025 – Last week witnessed a pricking of the tech bubble as several high-profile names lost 10-30% of their value in one day based on iffy forward-looking outlooks. Simultaneously, last Tuesday’s election suggested broad dissatisfaction with the direction this country is heading. Wall Street tends to ignore elections but the combination of an expensive market and concerning forward-looking outlooks were not well received by a market trading near valuation extremes. There hasn’t been a correction of 3% or more since Liberation Day last April. Caveat emptor.
  • November 6, 2025 – Markets have been whipsawed this week due to concerns over stretched technology company valuations. US stocks tumbled on Tuesday as risk-off sentiment returned to financial markets, but rebounded yesterday on buy-the-dip sentiment. The majority of earnings reports for the third quarter have beaten expectations and the outlook is steady. The trick for investors remains in separating the underlying signal from the daily noise.
  • November 3, 2025 – The government shutdown makes a lot of headlines but has little long-term economic impact. Expect it to end shortly as public displeasure starts to boil over. For equity investors, the big focus last week was earnings reports from five big tech names. While they all grew their earnings, they didn’t raise the bar which is what’s necessary for further significant gains. Markets rarely decline without reason in Q4, but the bull run since April looks a bit extended in need for at least a temporary pause.
  • October 30, 2025 – The current economy is defined by a deep bifurcation, where a massive, AI-driven capital expenditure boom is fueling record tech profits and a rising stock market for the affluent, even as the lower-income consumer faces a severe affordability crisis marked by rising delinquencies and credit-market stress. This “Tale of Two Consumers” creates a precarious investment landscape, as the tech rally is dependent on a potentially circular and unsustainable spending cycle, while the deteriorating financial health of the broader consumer base presents a significant headwind to the real economy.
  • October 27, 2025 – With President Trump making news overseas, and Canada facing more tariffs, Wall Street will focus on the earnings of five big major tech companies this week. In the short-term, meaning between now and year-end, the prospect of continued solid earnings and lower short-term interest rates should keep stocks moving higher. But there are always warning signs. The biggie is debt. Too much debt burst the balloon in 1929 and again in 2008, the two biggest calamities of the last century. Debt levels aren’t quite threatening yet but they are moving in the wrong direction and bear watching.

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