How Machines Destroy and Create Jobs
“There’s just doesn’t seem to be many blacksmith jobs these days.”
At first glance, this would be a ridiculous thing to say. Of course there aren’t many blacksmiths around. We live in a modern society and machines do a way better job of making things from metal anyways.
However, it also raises an important point.
What if machines are better at driving long-haul trucks? What if machines are better servers at McDonald’s? What if robots did your taxes for you?
While some of these ideas are contentious today, in the future we may look back thinking that our fears were ill-placed. The truth is that the job landscape is constantly in flux as technology changes.
Some of today’s jobs with high automation potential may be the future “blacksmiths”, and we should not be surprised if they go away. The best thing that we can do is to understand these trends and build a set of skills that will be in demand in any market.
The Trend is Your Friend
The following graphics from NPR shows the evolution of jobs over time in the United States.
The first divides jobs into four main categories: white collar, blue collar, farming, and services. It shows how the composition of the overall job market has changed over the last 165 years:
The second shows the same information, but plotted by the total number of jobs:
There were 10 million farmers in America in the early 20th century.
Now there’s closer to one million, and yet those farmers produce way more food. Technology may have “killed off” the majority of farm jobs, but at the same time new technology created jobs in the service, blue collar, and white collar industries.
We may now be at a similar inflection point for other careers – this interactive graphic shows some of the jobs that have been on the decline in recent years.
In 1960, a whopping 11% of the workforce was employed in factories. Today only 4% are employed in factories.
In the late 1970s, almost 5% of the workforce was secretaries. Today, we’re at about half that, but professionals can be just as productive without a secretary thanks to better computer software.
Yes, there are globalization issues at play here as well, but even a modern domestic factory such as the Tesla Gigafactory (which has the largest building by footprint in the world) will only employ about 6,000 people. The majority of the work will be done by robots.
And while it seems scary to think about the rise of machines and a faster pace of technological advancement, it’s important to recognize that these types of sweeping changes to the job market have happened throughout history.
The point is, try not to be the 21st century version of a “blacksmith”.
Nvidia Joins the Trillion Dollar Club
America’s biggest chipmaker Nvidia has joined the trillion dollar club as advancements in AI move at lightning speed.
Nvidia Joins the Trillion Dollar Club
Chipmaker Nvidia is now worth nearly as much as Amazon.
America’s largest semiconductor company has vaulted past the $1 trillion market capitalization mark, a milestone reached by just a handful of companies including Apple, Amazon, and Microsoft. While many of these are household names, Nvidia has only recently gained widespread attention amid the AI boom.
The above graphic compares Nvidia to the seven companies that have reached the trillion dollar club.
Riding the AI Wave
Nvidia’s market cap has more than doubled in 2023 to over $1 trillion.
The company designs semiconductor chips that are made of silicon slices that contain specific patterns. Just like you flip an electrical switch by turning on a light at home, these chips have billions of switches that process complex information simultaneously.
Today, they are integral to many AI functions—from OpenAI’s ChatGPT to image generation. Here’s how Nvidia stands up against companies that have achieved the trillion dollar milestone:
|Joined Club||Market Cap|
|Peak Market Cap
Note: Market caps as of May 30th, 2023
After posting record sales, the company added $184 billion to its market value in one day. Only two other companies have exceeded this number: Amazon ($191 billion), and Apple ($191 billion).
As Nvidia’s market cap reaches new heights, many are wondering if its explosive growth will continue—or if the AI craze is merely temporary. There are cases to be made on both sides.
Bull Case Scenario
Big tech companies are racing to develop capabilities like OpenAI. These types of generative AI require vastly higher amounts of computing power, especially as they become more sophisticated.
Many tech giants, including Google and Microsoft use Nvidia chips to power their AI operations. Consider how Google plans to use generative AI in six products in the future. Each of these have over 2 billion users.
Nvidia has also launched new products days since its stratospheric rise, spanning from robotics to gaming. Leading the way is the A100, a powerful graphics processing unit (GPU) well-suited for machine learning. Additionally, it announced a new supercomputer platform that Google, Microsoft, and Meta are first in line for. Overall, 65,000 companies globally use the company’s chips for a wide range of functions.
Bear Case Scenario
While extreme investor optimism has launched Nvidia to record highs, how do some of its fundamental valuations stack up to other giants?
As the table below shows, its price to earnings (P/E) ratio is second-only to Amazon, at 214.4. This shows how much a shareholder pays compared to the earnings of a company. Here, the company’s share price is over 200 times its earnings on a per share basis.
|P/E Ratio||Net Profit Margin (Annual)|
Consider how this looks for revenue of Nvidia compared to other big tech names:
$NVDA $963 billion market cap, 38x Revenue
$MSFT $2.5 trillion market cap, 12x Revenue$TSLA $612 billion market cap, 7.8x Revenue$AAPL $2.75 trillion market cap, 7.3x Revenue$GOOG $1.6 trillion market cap, 6.1x Revenue$META $672 billion market cap, 6x Revenue pic.twitter.com/VgkKAfiydx
— Martin Pelletier (@MPelletierCIO) May 29, 2023
For some, Nvidia’s valuation seems unrealistic even in spite of the prospects of AI. While Nvidia has $11 billion in projected revenue for the next quarter, it would still mean significantly higher multiples than its big tech peers. This suggests the company is overvalued at current prices.
Nvidia’s Growth: Will it Last?
This is not the first time Nvidia’s market cap has rocketed up.
During the crypto rally of 2021, its share price skyrocketed over 100% as demand for its GPUs increased. These specialist chips help mine cryptocurrency, and a jump in demand led to a shortage of chips at the time.
As cryptocurrencies lost their lustre, Nvidia’s share price sank over 46% the following year.
By comparison, AI advancements could have more transformative power. Big tech is rushing to partner with Nvidia, potentially reshaping everything from search to advertising.
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