Artificial intelligence (AI) holds the promise of dramatically boosting worker productivity¹ and reshaping the global economy. However, our research indicates that this AI-driven boom won’t happen instantly. 

Below, we explore how long it will take for AI to have a significant impact on the economy, which countries are poised to benefit first and what this means for your investments.

New technologies take time to impact productivity

When new technologies emerge, firms can take years, sometimes decades, to find profitable ways to use them and see productivity gains. 

We expect AI adoption to be faster than previous innovations. However, as the chart below shows, the US likely won’t see visible AI productivity gains until the late 2020s, even in our most optimistic scenario.

The AI economic boom isn’t here yet

Sources: Vanguard calculations, using data from O*NET, US Bureau of Labor Statistics and Congressional Budget Office, as at 30 June 2024.

We estimate that in developed economies, roughly 30% of current working hours will be spent on tasks performed by AI in 20 years’ time. However, this will not cause 30% unemployment because many of these hours will be redirected to other, less AI-sensitive tasks. 

The US has a first-mover advantage

Which countries are poised to benefit first? While the speed and impact of AI adoption will vary by country, early signs point to a substantial first-mover advantage for the US. This is one of the key reasons behind the recent rally in US share prices.  

As the chart below shows, companies in the US invested a huge $59.8 billion in AI in 2023 – far more than the rest of the world combined.

AI investment by region

Notes: Chart shows private investment in AI for 2023 and only includes companies that received more than $1.5 million in investment. The data likely understate global AI investment as they only reflect private equity transactions. 

Sources: Vanguard calculations, using data from Our World in Data, Stanford University’s AI Index Report 2024, and US Bureau of Labor Statistics, as at 31 December 2023.

In the US, we expect economic growth of 3.1% a year between 2028 and 2040, with nearly half of that growth attributable to AI. 

In a less-rosy scenario, where AI technologies only marginally improve from current capabilities, the benefits wouldn’t be enough to offset growing government deficits, and economic growth would hover around 1% per year.

What does this mean for investors?

Investors should temper any expectations for an immediate surge in economic growth and company profits. As always, it’s wise to build and maintain a balanced portfolio that aligns with your goals and attitude to risk. 

You might be concerned about missing on the AI trend and think that increasing your investment in the technology sector is the solution. However, if AI is going to transform the economy – which we believe is the more likely scenario – its benefits will extend far beyond the technology sector, just as the electrification of the economy didn’t solely benefit energy companies. In fact, companies outside tech stand to benefit the most.

Technology shares currently have high valuations – meaning much of the potential value is already priced in – and the tech sector, in general, has historically not outperformed during periods of technological transformation.

It’s also important to be aware of the risk that AI fails to deliver on its promises. If AI disappoints, the current hype may be overstated and the high valuations of technology shares could fall.

This highlights that investing beyond the technology sector is key. By spreading your money across different asset classes, sectors and regions, you’ll be well-positioned to capitalise on the opportunities presented by AI without the risk of concentrating too heavily in one asset class or sector.

¹ Worker productivity is the output per worker or per hour worked.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Any projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.

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