Egan-Jones says the 'complete destruction of the economy is all but certain'

Brace for another gloomy view of how artificial intelligence will hit the economy, this time from Egan-Jones.

Another doomsday artificial intelligence report is making the rounds, this time with the simple title: "It's over."

"AI has advanced so far that the complete disruption of the economy is all but certain, and firms that sell expertise by the hour, senior talent included, are first in line," wrote independent credit agency and proxy advisory service Egan-Jones on Thursday.

"Expect compressed margins in professional services, lower returns to venture capital and short-term pressure on home prices as screen-based jobs are disrupted," the firm predicted.

Egan-Jones said its more definitive views come as "capabilities of the latest {AI] models appear to have surpassed a threshold of quality in their output and speed for widespread adoption." They expect some business will do better with fewer or even no workers, and can easily operate 24 hours a day.

The gloomy forecast comes months after Citrini Research went viral with its own AI apocalypse view, which some blamed for wiping $200 billion in market capitalization off software stocks at the time of its publication in February. Citrini predicted those companies would be hit first before widespread white-collar job losses.

Egan-Jones also sees hard times for software-as-a-service firms (SaaS), noting that their edge when it comes to interfaces that allow users to communicate with computers is being replaced by simple AI-platform conversations.

The iShares Expanded Tech-Software Sector ETF IGV has recovered from lows seen in February and April Cybersecurity group CrowdStrike (CRWD) has surged 127% this year, and IT and consulting services group Accenture $(ACN)$ surged on Thursday after surprising investors with resilient earnings.

Egan-Jones, which advises institutional investors, asset managers, and financial institutions, warned firms selling "intellectual capital by the hour," such as auditing, investment banking, consulting, law and engineering face price erosion from AI competition.

That will lead to jobs cuts - a small team of workers using AI already matches the output of a bigger company, growing without having to rely on years of hiring, with incumbency less important. They see a particular risk for senior staff whose expertise can now be found on AI.

The firm also pointed out how fast startup companies can scale using AI, which will also mean they need to rely on advertising less. For example, their chart shows how ChatGPT reached 1.2 billion users in 3.8 years versus 8.6 years for Facebook to hit 1 billion.

Egan-Jones addressed effects on venture capital, pointing out that startups can reach scale faster with less money, so those firms will ultimately lose leverage and see returns compress.

Much like Citrini months ago, Egan-Jones said job losses will be crucial to watch, with any screen-based worker exposed. The fallout will be particularly tough for the housing market, where prices have been stalling this year.

They predict a short-term hit to the housing market as many mortgages rely on two incomes and housing has gotten more expensive relative to salaries, especially for buyers already stretched financially thin.

Over the longer term, the case for urban land holds, due to demand and the desire for people to live near others, they said. "Our view is short-term downward pressure, driven by that thin cushion faced by some homes," they said noting that around 60% of owner-occupied U.S. homes have a mortgage.

Egan-Jones, which has been expanding into private credit, has faced scrutiny by the Securities and Exchange Commission over its credit-ratings business. The company has said it stands by its ratings - two former employees are suing it as they said they were pressured into inflating ratings to attract business. The Wall Street Journal reported that U.S. insurers have around $40 billion of debt investments on their books that Egan-Jones has privately graded.

Egan-Jones said the report was not written by its credit-ratings team, though it didn't identify who authored it.

-Barbara Kollmeyer