Gerstner predicted in 2018 that AI's impact would exceed the internet's, a year after the transformer model.
“And at that event, in 2018, I said, and this was a year after the transformer model, that the impact would be greater than the Internet itself.”
Gerstner claims AI will be bigger than the Internet in economic productivity impact despite near-term disillusionment ahead.
“But my my sense here is, you know, and I've said the AI is gonna be bigger than the Internet itself in terms of impact on economic productivity.”
Gerstner observes companies can now cut tens of thousands of employees while increasing customer satisfaction, unprecedented historically.
“Never have has he seen or have I seen the ability for companies to take out 10,000 people and actually see customer satisfaction scores increase.”
Gerstner reports organic search traffic down 20-40% as companies push AI-embedded answers above traditional results.
“They're saying organic search is down 20 to 40%. Why? Because they're putting AI on top of it. They got to push it down the page.”
Gerstner notes 70% of current jobs didn't exist in 1940 to illustrate technology's job creation.
“70% of the jobs that exist today did not exist in 1940. Okay? So we have to evolve and we have to expand.”
Gerstner says software valuations only recover when companies prove they are AI beneficiaries through revenue acceleration.
“So the only way that reverses, Scott, is those companies have to accelerate their core revenues and show that they are beneficiaries of AI.”
Gerstner explains software stocks previously traded at 35x free cash flow due to bond-like predictability.
“Give them 35 times free cash flow because I had that level of predictability. It was like a government bond.”
Gerstner says AI uncertainty has rationally caused investors to discount future cash flows and terminal values.
“I can't see as far into the future, so I'm gonna pay less for the terminal value. I'm gonna pay less for those future free cash flows.”
Gerstner describes exponential AI change creating fog of war where investors cannot predict 35 years of cash flows.
“Fog of war. I can't predict thirty five years into the future of those free cash flows, so I have to pull it in a little bit.”
Gerstner explains software stocks fell because AI uncertainty reduced visibility, lowering multiples from 35x free cash flow.
“Give them 35 times free cash flow because I had that level of predictability. It was like a government bond. It was a sure thing.”