Can the “Sorcery” AI resolve the “productivity paradox” that has been grasping the economy for 25 years? A Shakespearean sea change is under the foot

Complete disclosure: the author’s brother is an eminent Shakespearean scholarship holder, often quoted in The New York TimesAlthough never before in FortuneAnd so I asked him to explain what this particular term means. “Towards the end of his career,” Lichtenberg of the Shakespeare Theater Company said in Washington DC, in a press release Fortune“Shakespeare started writing games defying genres with sudden and miraculous makeshift changes.” Shakespeare used the expression “sea change” to describe a “magic storm at sea which has the power to find life or restore it in less than a second”.

What are the pieces of Shakespeare’s miraculous fortune have to do with it, well, Fortune? The Bank of America Institute projected a “sea change” in the economy. He sees a central transformation in workers’ productivity in the largest American companies, drawn by the lessons of post-payic inflation and supercharged by a wave of artificial intelligence and automation. The Institute worked hand in hand with projections of the research of Bank of America to project a recreation of the landscape of the fundamental evaluation of the S&P 500, with deep implications for investors and the “quality premium” that American actions traditionally command.

Fortune spoke at the head of the strategy and quantitative strategy of Bofa Research, Savita Subramanian, to dig into this change, potentially to something rich and strange. It’s not entirely mystical, she said, but she still thinks it’s a big problem.

Finally, a productivity push?

Subramanian explained that what his team has projected is not as exciting or dramatic as having real wizards working on the economy team. The more prosaic insight, she says, is that the combination of AI technology and lessons learned from the 1920s ‘inflation wave means that workers’ productivity finally shows signs of increase. This is sea change.

In his heart, his work concerns the famous “productivity paradox” identified by the economist winner of the Nobel Prize Robert Solow. “You can see the age of the computer everywhere but in productivity statistics,” he said in 1987, long before the 21st century productivity crisis. FortuneJeremy Kahn discussed, workers still do not seem to become more productive despite the multitude of new technologies at their disposal. In fact, Chris White and Olivia White of McKinsey argued in 2024 that productivity has been lamentable for almost a generation, oscillating approximately 1% per year, with a drop after the great financial crisis. Subramanian agrees, telling Fortune that if you look at the productivity measures, “they haven’t really improved it since 2001.”

Subramanian wrote on August 8 that the final objective of Massive IA expenses that wave in the economy is a “sea change” in the scale and the scope of efficiency gains – and this productivity cycle is already underway. The inflation of post-country wage has forced companies “to do more with fewer people,” she added, and now AI tools should launch a notch.

But official statistics do not show a complete understanding of the functionality of productivity, said Subramanian. The Bofa therefore took sales, adjusted to inflation, then divided sales by the number of people working in S&P 500 companies, showing real sales growth compared to the number of people, which it called a “decent proxy” for productivity, “because if you are productive, you do things more effectively, you need less labor. And it is more efficiency of work than anything else. ”

Look at what she found.

This means that companies learn to do more with less, and it’s a bit magical. Companies had to do more difficult work to generate income and keep the margins healthy, often by replacing their people with processes. “A process is almost free and it is reproducible for eternity,” she said, adding that it is why companies that exercise efficiency gains have tended to surpass. It is not only a question of moving AI workers, but of a fundamental change in the way companies are made.

‘It’s like a witchcraft’

This discussion may seem more boring than a storm and a sorcerer, she said, but there is something supernatural in the current moment. “I think people like this IA technology because it looks like witchcraft,” she said, before adding: “The truth is that she hasn’t really changed the world yet, but I don’t think that is something to reject.”

Overall, Subramanian notes that the S&P 500 has gone from its 80s model with a high active intensity and the high intensity of labor towards the innovation of assets and the light of work, namely technological and health care companies. Showing her work, she calculates that the companies of the S&P 500 by emphasizing innovation, measured by high research and development spending, trade with structurally higher multiple of 29x long -term benefits per share. More capital manufacturers, on the other hand, are negotiated with a multiple of 21x. The current AI boom is actually a little risky, she wrote, because the massive investments in the data center represent a passage from a light of assets to an asset orientation.

Admittedly, Bofa notes that the S&P 500 is now statistically expensive out of 19 of the 20 metrics they follow, including P / E, the price to book, the price for cash flow and market / GDP capitalization. This is where maritime change is important, because if the transition from manufacturing to innovation is real, then the evaluations must also change. Hence the “innovation premium” of Bofa’s research.

To the exclusion of Tesla, Subramanian speaks of the other members of the “magnificent seven” as proof that companies lose part of their innovation bonus due to a change towards the violation of assets. As a basket of shares, Microsoft, Google, Amazon, Meta, Nvidia and the average yield of Apple shareholders (i.e. dividends plus net redemptions) has dropped by more than 1% since 2015.

There are also other quarters of work, she said Fortune. “We seem at least one break on this theme of globalization,” she said, citing the admission of China to the World Trade Organization in 2001 as a large engine of expansion of margins, allowing costs to be reduced as a huge lever to maintain expanding margins. (It was also the year when workers’ productivity frozen in its footsteps.)

In the globalization regime, “you did not have to think too much to earn money and to extend your margins,” she said. It was “very easy and fungible and without friction” for companies to buy things in different places and contain costs. It has also cited the low -interest environment that has persisted for a large part of the last decades, allowing many “financial engineers”.

For example, Subramanian said that it was common to see companies who knew that they would miss their benefits of profits borrowing money and buying up actions to achieve their objectives, adding the warning that there are good reasons to take stock of action and bad reasons to make shareholding. “All this” has really created a lot of bizarre behaviors “.

The longtime penchant of Warren Buffett for share buybacks has even been criticized by other investors, with Jeremy Grantham writing in 2023 that he facilitates the manipulation of actions and should be illegal. Bofa’s research noted in July 2025, however, that the acquisitions of action had died a little, but they remained high according to historical standards.

The situation is now more difficult in many ways, but companies are unable to financially manage their path to the growth in profits, she added. Now it’s a sea change.

A final note on the Shakespearian novels, by Drew Lichtenberg: this appellation occurred in the late 1700s, almost two centuries after the life of Shakespeare, with the birth of the romantic movement. The word “romantic” had previously existed, but it did not have its current meaning until Samuel Taylor Coleridge raised it to signify something that connects directly to the nature and divine genius of self -expression of humanity. It was largely an answer to the elevation of reason and the logic of the Enlightenment and its ultimate realization: the industrial revolution which sparked modern capitalism on the world. A sea change, indeed.