AI Makes for Strange Bedfellows

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Good morning!

They say politics makes for strange bedfellows. Apparently, so does the world of AI. This week we have seen fierce rivals come together urging for a slowdown in AI development to properly regulate, mitigate, or otherwise formulate a response to what they are describing as the existential threats to humanity posed by this new technology. Backing up the call of Anthropic’s Dario Amodei are OpenAI’s Sam Altman and SpaceX’s Elon Musk. Though not explicitly in agreement with Amodei’s essay, an unlikely group of individuals has expressed a similar view on the need for caution. They include: prominent Republicans like Sens. Ted Cruz (Texas) and Josh Hawley (Mo.), independent Sen. Bernie Sanders (Vt.), and conservative activist Steve Bannon – as well as the EU’s Henna Virkkunnen and, of all things, China’s Ministry of State Security. 

A similarly unusual grouping has aligned on the other side as well. Dismissing those concerns are Nvidia’s Jensen Huang, President Trump, and Meta’s Yann LeCun, along with (again, of all things) China’s Ministry of Foreign Affairs. They are among the many who either dispute the magnitude of the risks described or argue that there is nothing to be done about it because with the proverbial genie already out of the bottle, the need to outpace rival countries such as China takes precedence. (Some prominent Democrats have criticized Amodei’s essay from a different direction, arguing that it does not go far enough.)

For the record, I was at a somewhat impressionable age when I saw James Cameron’s first Terminator movie in the theater, so his far-from-subtle warnings about AI are embedded in my psyche. Still, as those above my pay grade debate the issue, the question at hand is: how should AI investors respond? In the short term, the calls for caution have arguably weighed on many AI-related names this week – stocks like NVDA, AVGO, and ORCL are down 2.8%, 6.3%, and 6.6% for the week thus far (respectively), though Amodei’s essay likely cannot take the full blame for that.

Yet this is just the latest facet of emerging opposition to AI in one form or another. We’re seeing NIMBY opposition to the construction of data centers needed to continue advancing the field of AI, as well as anxiety over AI-driven job displacement, intellectual-property issues, and mental-health concerns. Meanwhile, the voices on Wall Street questioning the advisability of growing AI capex spending are growing louder.

But what, exactly, did Amodei propose? 

Certainly not a halt to AI development. Not even a literal slowdown relative to the current pace of development – merely not continuing to advance as quickly as possible, which is not the same as a slowdown. Here’s why: Amodei noted the emergence of “recursive self improvement,” in which AI itself is used to build and advance the next generation of the technology, a trend that he said is likely to repeatedly enable “drastically faster” advances. The anticipated potential for acceleration is why those on Amodei’s side of the table are so worried about losing control. The more AI is used to develop successive generations of frontier models, the faster the unchecked pace of development will get, and the more difficult it will become for humans to understand what’s going on “under the hood” – and what could go wrong. 

What Amodei called for is not a halt or slowdown in the purchase of cutting-edge GPUs from the likes of Nvidia and AMD, or a halt/slowdown to the construction of hyperscalers, or a halt to the construction of data centers and power plants. Demand for such products and services is already well beyond the ability of companies to provide them, with both AI “armies” and “bulletmakers” reporting hefty backlogs. This does not need to change – implementation of these precautionary proposals can take place at the same time as these long-term proposals.

That last word is important as well. These are just proposals. Even those who largely agree with Amodei are in disagreement over the details – Google DeepMind’s Demis Hassabis, for instance, agreed that Amodei’s essay “points towards the right path forward,” but he immediately (but diplomatically) appended his view that “the details need working through.”

For investors, my view is that not much has changed in the case for AI investment. And for those worried about the risks, it might be worth quoting not from Cameron’s original Terminator, but later installments of the franchise: “There is no fate but what we make.” For long-term investors, this might be a good buying opportunity.

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📧✍️Here’s what a reader commented📧✍️

Q: Which do you think will give out first – refinery infrastructure, or demand for gasoline?

A: I think that no one has mentioned that refineries will need to shut down for the switchover to winter fuel production. This always causes a temporary shortage. Something to think about.

Catch up with Fundstrat

There are times when market caution and trepidation lead to pricing in the bad news ahead of an event. To us, the selloff of stocks in Sept into CPI and now FOMC rate decision are creating a situation where any decision likely drives a rally.

Technical

I find Monday’s minor “backing and filling” on AI fears to be overblown and not something which should prove long-lasting. Monday’s pullback likely proves an excellent buying opportunity.

Crypto

I remain skeptical that Clarity ultimately gets signed into law on the current timetable even if today’s procedural vote succeeds, but I think (1) 60 votes to proceed would result in a meaningful rally and a break of current range highs for the majors, and (2) the market setup is interesting because expectations remain quite low.

News We’re Following

Breaking News

• Fed meeting today: Markets steady as investors await rate decision WSJ 

Markets and economy

• Bizarre volatility bet in the options pits is a head scratcher ahead of Fed rate decision CNBC 
• American businesses have no idea how to set prices right now WSJ 

Business

• SK Hynix says exploring options after report of Intel tie-up BBG 
• OpenAI considers pre-IPO funding round at more than $1.2 trillion valuation WSJ
• Trump administration orders Kalshi to scrap AI price tracker over national security concerns SEM
• Boeing set to salvage delayed Turkish Airlines order, sources say REU

Politics/U.S.

• Deep in Trump country, a revolt against corporate money could reshape political spending REU
• Kash Patel defends FBI’s new policy on bestiality at Senate hearing NBC 
• US charges five people linked to Russian ‘assassination network’ FT 
• Journalist and pilot among three killed after news helicopter crashes in LA BBC 

Overseas

• The Gulf’s AI nightmare came courtesy of an Iranian drone WSJ 
• EU chief backs plan for Canada to become ‘associate member’ BBC 
• Kosovo ex-president Thaci gets 25 years for war crimes BBG

Of Interest 

• More than 100,000 people in Japan are now 100 years of age or older BBC