Advances in the technology have 'surpassed a threshold of quality,' according to Egan-Jones Ratings

Brace for another gloomy view of artificial intelligence's impact on the economy - this time from a credit-ratings agency.

Advances in artificial intelligence mean that "the complete disruption of the economy is all but certain," according to a new report laying out the downsides of the fast-moving technology.

Firms that sell hourly expertise will be "first in line" for job losses, and top talent won't be immune, independent credit agency and proxy advisory service Egan-Jones wrote in commentary released 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 report said.

The report adds to a growing list of forecasts about how AI could affect the economy - forecasts that have at times impacted financial markets.

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." The firm expects that some business will do better with fewer or even no workers and will easily be able to operate 24 hours a day.

The gloomy forecast comes months after Citrini Research went viral with its own view of an AI apocalypse, which some blamed for wiping out $200 billion in market capitalization from software companies when it was published 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 companies, noting that their interfaces that allow users to communicate with computers are 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's stock (CRWD) has surged 127% this year, and shares of IT and consulting-services group Accenture $(ACN)$ rose Thursday after the company surprised investors with resilient earnings.

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

That will lead to job cuts, the report concluded, as a company with a small team of workers using AI can already match the output of a bigger company and can grow without having to rely on years of hiring. Egan-Jones sees a particular risk for senior staff whose expertise can now be found in AI.

The firm also noted how fast startups can scale using AI, which will also mean they need to rely less on advertising. For example, the chart below shows how ChatGPT reached 1.2 billion users in 3.8 years, versus the 8.6 years it took for Facebook to hit 1 billion users.

Egan-Jones also addressed the potential effects on venture capital, pointing out that startups can scale up faster with less money, which means that venture-capital firms will ultimately lose leverage and see their returns compress.

Echoing what Citrini said months ago, Egan-Jones said it will be crucial to keep an eye on job losses, with screen-based workers particularly exposed. The fallout will be particularly serious for the housing market, where prices have already stalled this year.

The firm predicted 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 who are already stretched thin financially.

Over the longer term, the case for owning property in urban areas will remain strong, owing in part to a desire 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 did not identify who authored the report, although it did specify that it was not written by its credit-ratings team.

-Barbara Kollmeyer