What if AI Doesn't Work? Apollo's Torsten Slok Sees "No Signs" of AI Productivity Growth.

Ever since the debut of ChatGPT in November 2022, artificial intelligence (AI) has been widely hyped as a transformative technology. A new era of AI-powered business tools is expected to deliver significant gains in productivity, efficiency, and profits.

All that is good news for investors. But what if it doesn't work?

On Saturday, Apollo economist Torsten Slok made waves with a rather bearish analysis of AI's future. Slok's research found that despite hundreds of billions of dollars invested in AI data centers to develop leading-edge AI models, "there are still no signs of AI boosting productivity growth."

If that happens, it could be bad news for the stock market. Let's look at what Apollo's new AI research might mean for your portfolio.

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Apollo research: No signs of AI boosting productivity or profits (beyond tech sector)

Apollo's research found that the AI era seems to be driving a larger gap between the "Magnificent Seven" tech companies and the other 493 companies in the S&P 500 (SNPINDEX: ^GSPC). Since the third quarter of 2022, when ChatGPT launched the AI boom, the Magnificent Seven have seen higher profit margins and higher revenue per worker.

But the other members of the index have not. These constituents, as a group, have seen comparatively flat productivity and profitability.

Slok's research also found that most AI spending is concentrated among a small number of companies that sell AI-related services, such as cloud computing. The companies that "sell AI" seem to be profiting from it so far -- but what about the rest of the companies that investors hope will want to keep using (and paying for) AI?

What if corporate America doesn't want to keep buying what the AI industry is selling? In his research, Slok warned that "...mainstream corporate America does not need the latest model and is unwilling to pay for it."

How to invest in case AI doesn't pay off

Apollo's AI research is worth watching, but it's not the final verdict on what happens next with the economy. Other sources have suggested that some S&P 500 companies are already seeing meaningful gains from new AI tools and automated business processes.

But if you're worried that tech companies are spending too much on AI and that leading AI labs are burning too much cash, there are a few possible ways to invest next.

First, you might want to avoid loading up on tech stocks and instead buy a simple, low-cost S&P 500 ETF. The Vanguard S&P 500 ETF (NYSEMKT: VOO) has delivered annualized returns of about 13.8% in the past five years, even though there was a bad bear market in 2022.

In case of a tech stock sell-off, an S&P 500 ETF might still decline in value, but the downturn would likely be less steep than a tech-heavy ETF would deliver. And the S&P 500 tends to be highly resilient -- the market has bounced back from every crisis and crash, delivering strong returns for long-term investors.

Buying bonds or international stocks to protect against an AI crash

Another option is to invest in bonds. The Vanguard Total Bond Market ETF (NASDAQ: BND) lets you buy a mix of more than 11,000 high-quality U.S. bonds, including Treasuries and investment-grade corporate debt.

Bond yields on U.S. Treasuries have recently surpassed 5%. Those higher yields could let you lock in that risk-free income, while also offering the chance for bond prices to go up in case yields go down in the future. Buying bonds now could be a good way to balance your risks in case of a stock market crash.

And if U.S. tech stocks go into a sell-off, that could also make international stocks a better investment. A U.S. stock market crash would likely lead to a decline in the value of the dollar. If you buy international stock ETFs like the Vanguard Total International Stock ETF (NASDAQ: VXUS), those international holdings would be worth more in dollar terms if the dollar gets weaker.

There is no 100% guaranteed way to protect yourself from the risks of the stock market. Long-term investors should try not to worry too much. AI might deliver the hoped-for gains. And even if there is a short-term downturn, the economy (and the S&P 500) might keep growing for years to come.

But in case you're skeptical about the big promises of the AI trade, you might want to make a few moves before a crash begins.

Ben Gran has positions in Vanguard Total Bond Market ETF and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF and Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.