Episode summary
No ROI Yet. Fewer Recessions. Are You Making More Money? | 4 Things We Learned This Week
Excess Returns
· · 31 min · Hosts: Jack Forehand, Matt Zeigler · Guests: Andy Constan, Azeem Azhar, Aahan Menon
Summary
The episode argues that the biggest open question in AI is not whether the tools are impressive, but whether end users are generating measurable ROI. The host and a guest say many AI services are effectively subsidized, so current usage may overstate the true economics. They also stress that personal productivity gains are real, but those gains do not automatically translate into higher profits at the company level, especially if firms are only layering copilots onto legacy workflows.
A second theme is that AI value may require full process redesign, not incremental add-ons. The guest compares AI to electrification: early benefits came from light bulbs, but the major productivity leap came only when factories were reorganized around electric power. The host agrees that end-to-end workflow changes, not isolated tasks, are where the biggest gains will eventually show up, but both say that will take time and may look unprofitable in the near term.
The episode also covers why the U.S. may now experience fewer recessions. A guest argues that a more service- and tech-heavy economy, smaller manufacturing cycles, and stronger household and corporate balance sheets have made the business cycle less volatile. The final discussion turns to the Fed, where Andy Constan argues for lower short-term rates alongside a smaller balance sheet, a mix he thinks could modestly favor Main Street over Wall Street while smoothing asset-price distortions.
Key takeaways
- Andy Constan argues AI ROI is still unclear at the end-user level because tokens are often subsidized, masking the true cost of adoption.
- Azeem Azhar says companies cannot become AI-native by adding more copilots; they need to redesign workflows around AI from the start.
- The host and a guest say AI benefits are showing up first as personal productivity, not yet as clearly measurable profits.
- Aahan Menon argues fewer recessions may reflect a less manufacturing-heavy, more service- and tech-driven economy.
- Andy Constan says a smaller Fed balance sheet plus lower short-term rates could modestly rebalance markets toward Main Street.
- The episode’s core message is that both AI returns and business-cycle effects are real, but they will take time to show up cleanly in the data.
Notable quotes
“there's no ROI yet there's very limited investment because tokens are largely being subsidized”
“You cannot go from light bulbs to the moving assembly line by adding more light bulbs”
“you can't go from co-pilots to an AI native firm by just adding more co-pilot licenses”
“I think the business cycle is dramatically different”
“I like the idea of a smaller balance sheet and lower short-term rates”
How the episode opens
Welcome to the XS Returns weekly rack where we play the highlights and uh break down the best clips from this week's episodes. And I've got my good friend as usual, Matt Ziggler. I'm Jack Forehead. Matt, you ready to go?
I'm ready to do this. I'm liking this. We got a AAA episode right here. That's what I'm seeing when I see these names. — Oh, I didn't even see that. You're always ahead of me on these things, like picking stuff out.
We got the We got the AAA. We got Andy. Who is it? Andy, Azim, and Aan. — Yes.
I mean, this is this is a murderous row right here. I'm liking these clips. I love that we're about to talk about the AI ROI question because I think about this I think every single day at this point in my life and then when we get into the business cycle stuff too is just this is an ultra cool section of clips that they all happen at the same time is tells me how much people are thinking about this stuff too.
Yeah, a lot of different angles on this. So we've got as you mentioned we got Andy Constantin from our show First Principles that we do monthly with him. We've got Azimar from Kyoo show the intangible economy that comes out every month as well.
Um, and then we've got my interview I just recorded yesterday with Aan Manan. Um, which is awesome as well. Like I love, as you know, I'm kind of a sucker for systematic quantitative approaches.
Um, so I really like the way he looks at things. So we've got a really interesting clip there as well.
You're a sucker for systematic quantitative approaches. And apparently, what do we have like a gravy set behind you?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai roi
- business cycle shift
- productivity j-curve
- fed balance sheet
- asset prices and inequality
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from Excess Returns
-
We Asked Fidelity’s Director of Global Macro Who Wins If AI Spending Slows -
An AI Bubble Could Hit Stocks. Inflation Could Hit Bonds. How Do You Diversify and Keep Both? -
Tech Is Priced for a Boom. 86% of the Economy Grew 0.7%. What If AI Slows? -
Tech Is the Cheapest Since 2022. Walmart Is 46 Times Earnings. Where Is the Bubble? -
This $1.5 Trillion Manager Expects More Fed Hikes. So Why Is He Still Bullish? -
AI Stocks Cracked. Margins Could Be Peaking. So Why Is a Liquidity Expert Watching the Debt Wall?
Excess Returns, this episode and its artwork belong to Excess Returns. Octagon is not affiliated with the show; this page is an independent summary.
