'It's over': Analysts discuss how AI threatens professional services, housing

Advances in AI mean that “the complete disruption of the economy is all but certain,” predicts Egan-Jones, independent credit agency and proxy advisory service, in a recent report. Its analysts are known for flagging trouble at major companies early. In particular, the firm downgraded Enron and WorldCom before the scale of their problems became apparent to the market, while in 2008 it warned of credit risks at Bear Stearns and Lehman Brothers.

Egan-Jones' report, titled “It’s Over”, argues that firms that sell expertise by the hour will be “first in line” for job cuts as AI advances. Even the most highly qualified professionals will not be immune.

“The capabilities of the latest models appear to have surpassed a threshold of quality in their output and speed for widespread adoption,” Egan-Jones wrote. That means investors should expect “compressed margins in professional services.” Some companies will be able to operate more efficiently with fewer employees or none at all, according to Egan-Jones, and will easily be able to operate around the clock.

The gloomy forecast echoes the arguments in a viral Citrini Research report that rattled the market in February with its “AI apocalypse” scenario. Investor concerns contributed to a selloff in software stocks that wiped a combined $200 billion from their market value, MarketWatch notes. Citrini predicted that software companies would be hit first, followed by widespread white-collar job losses.

Egan-Jones also sees trouble ahead for software-as-a-service companies. The firm noted that the interfaces through which users interact with computers will be replaced by simple conversations with AI platforms.

Egan-Jones warned that firms selling “intellectual capital by the hour,” including providers of audit, investment-banking, consulting, legal, and engineering services, face price erosion from AI competition. That will lead to job cuts: a small team using AI can already match the output of a larger company and then scale the business without expanding its workforce. Egan-Jones sees particularly high risks for senior staff because their expertise is now readily available through AI.

The firm also highlighted how quickly start-ups can scale with AI. That, in turn, means they will rely less on advertising. It will also reshape the venture-capital market, Egan-Jones noted: venture firms will eventually lose some of their leverage and see their returns compress.

The consequences of job cuts could be particularly severe for the housing market, where price growth has already slowed this year. Egan-Jones explained that many mortgages depend on two household incomes, while homes have become more expensive relative to pay, especially for buyers whose finances are already stretched thin.

“Our view is short-term downward pressure, driven by that thin cushion faced by some homes,” the report said. Egan-Jones emphasized that around 60% of owner-occupied U.S. homes have a mortgage. Over the longer term, the case for owning property in urban areas will remain strong, owing in part to people’s desire to live near others, the firm said.

Other major market participants have expressed similar concerns. In late September, Bridgewater Associates, one of the world’s largest hedge funds, warned that AI could dislocate 18% of the U.S. workforce.

McKinsey Global Institute offered a more moderate scenario: around 11 million U.S. workers may have to change occupations over the next decade, but the economy could simultaneously add almost four times as many new jobs. McKinsey therefore estimates that AI will substantially reshape employment by 2035 without reducing the overall workforce.

For now, AI is not necessarily reducing demand for professional services. Accenture, the world’s largest consulting firm, said on Thursday that the technology is helping it increase revenue per employee and that sales growth could accelerate in the new financial year. CEO Julie Sweet said clients are only beginning to adopt AI and continue to turn to Accenture for help modernizing their digital infrastructure. The company nevertheless expects overall headcount growth to slow.