Five for Friday
March 28, 2025
Entrepreneurship, AI Impact, Bearishness, Valuation, Innovation
1. New biz
There’s been a sustained surge in high propensity business applications in the U.S. despite post-pandemic headwinds (high interest rates, high inflation, etc.). This is critical, because small businesses have created over 70% of net new jobs since 2019 and produce 16 times more patents per employee than large businesses and universities. Younger firms are also “more likely to adopt new technologies or production processes, use existing processes more efficiently, or create new products,” no doubt adding to the uptick in labor productivity since the start of the pandemic (particularly since a disproportionate amount of the new business formation this decade has been in high tech industries). Given the importance of productivity to long-term economic growth and improvements in living standards, here’s a hat tip to the entrepreneurs forming the businesses today that will be the Nvidias and Apples of the 2030s, 2040s, and beyond.
2. AI
That uptick in labor productivity (since early 2020) has been largely without a boost from AI. Only 7.4% of firms reported using AI in the last two weeks (doubled from 18 months ago, but still low), and only 26% of all workers use generative AI at work. But early returns on AI usage are promising. The St. Louis Fed found that work adoption of generative AI has been as fast as the personal computer, and overall adoption has been faster than either PCs or the internet. The report goes on to say that 1% to 5% of work hours are now assisted by generative AI, saving the equivalent of 1.4% of total work hours. One case study that gave customer support agents an AI assistant found that issues resolved per hour increased by 15% on average, while “customers were more polite and less likely to ask to speak to a manager.” More of that, please.
3. Bearish
The percent of investors reporting bullishness in the Investors Intelligence survey is now below 30%. This is rare. Of the 1,500+ weeks of data collected by the survey over the last 30 years, only 41 weeks saw fewer than 30% of investors bullish. From a contrarian perspective, this is a positive. The average one-year forward return from those 41 readings was 20%, with stocks positive over 87% of the time. As Warren Buffett has quipped, he likes to “be greedy when others are fearful.” With so many bears on Wall Street, it’s hard to describe the sentiment backdrop as anything but an asset for investors.
4. Valuation
The forward price-to-earnings ratio of the S&P 500 Equal Weight (in other words, the amount that investors are willing to pay for the next year of earnings from the “average” stock) is now right at its 10-year average. This tells us that while some stocks are expensive, the market over all is fairly priced… as long as earnings grow as much as Wall Street expects them to.
5. On this day
in 1797, Nathaniel Briggs patented the first U.S. washing machine. Amid discussion of high concept tech inventions like AI and quantum computing, something as simple as a washing machine might feel humdrum. But this couldn’t be farther from the truth. The houshold equipment revolution reduced time spent on chores (from nearly 60 hours a week in 1900 to less than 15 a century later). Work force participation skyrocketed and overall economic growth accelerated. Even ostensibly basic innovations can have far-reaching effects.
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