Markets Love Innovation.
Productivity Takes Longer.
Artificial Intelligence has rapidly become one of the defining investment themes of our time. From boardrooms to capital markets, billions are being invested on the assumption that AI will fundamentally transform productivity, profitability, and economic growth. The enthusiasm is understandable. History shows that breakthrough technologies can reshape industries and create enormous value.
But history also offers an important lesson. Transformative technologies rarely deliver immediate productivity gains. Before organisations can realise the benefits of innovation, they must first invest in infrastructure, redesign processes, develop new capabilities, and adapt the way they work. In many cases, productivity initially stagnates—or even declines—before eventually accelerating.
The internet revolution of the 1990s provides a useful example. While investment surged throughout the decade, many of the most meaningful productivity gains only became visible years later, once businesses had fully integrated the technology into their operations.
This raises an important question for investors today: Are markets pricing in the promise of AI faster than the productivity benefits can realistically emerge?
In our latest paper, we explore the relationship between technological innovation, capital expenditure cycles, and investment outcomes. We examine the historical evidence, the forces that typically bring investment booms to an end, and what investors should be watching as the AI cycle continues to unfold.
The paper by Neo Sithole, Quantitative Investment Analyst at Mentenova, explores:
- Why transformative technologies often follow a productivity “J-curve”
- The historical parallels between today’s AI boom and the IT revolution of the 1990s
- The three forces that have historically ended major capital expenditure cycles: rates, leverage, and liquidity
- How different phases of the cycle have historically favoured different asset classes
- The key questions investors should be asking as capital continues to flow into AI-related investments
While the future impact of AI remains uncertain, understanding the journey from innovation to productivity may prove just as important as understanding the technology itself.
Download Full Article
To explore the historical evidence, investment implications, and Mentenova’s perspective on where we may be in the current cycle, download the full article below.