AI: Concentrated Fears & Hopes

... a tale of two dichotomies

We started this week with OpenAI, the leading AI company of this technology wave, talking about their upcoming, concentrated four year effort, to focus their top tech talent and resources, on the ‘Superalignment of Superintelligence’. Specifically to guard against the biggest downside risks of AI: 

“Superintelligence will be the most impactful technology humanity has ever invented, and could help us solve many of the world’s most important problems. But the vast power of superintelligence could also be very dangerous, and could lead to the disempowerment of humanity or even human extinction. While superintelligence seems far off now, we believe it could arrive this decade.”

Those pesky existential AI concerns again. 

But squint in a different direction, and one almost needs shades for the bright intensity of investor optimism in our private and public markets. It certainly is reflected in the multi-billion investment boom around private AI startups and acquisitions, and of course in our public markets. As some observers note:

“Apple, Microsoft, and 3 other stocks are now worth nearly $9 trillion – or almost 25% of the S&P 500”

Indeed, to continue from the smart folks at Goldman Sachs,

“The equity performance of large cap US technology companies continues to reign supreme. Last week Apple became the first publicly traded company to hit a $3 trillion market cap. As of 1H23 close, Apple accounted for 7.7% of the S&P, the largest single company weighting since 1978 and one of only five companies with an outright market cap > $1tr. 

But Apple is not alone – it’s one of a handful of tech stocks that have roared in recent months, powering the Nasdaq to its best 1H in 40 years. Nasdaq is up 38% YTD, with US mega cap tech up a blistering 54%.

Of particular note:

“Apple and Microsoft combined comprise a larger share of the S&P (14%) than any two companies since 1979. Both stocks have been up every single month this year. Seven US tech names are driving most of the positive index returns: AAPL +47% ... MSFT +42% ... GOOG +37% ... AMZN +54% ... NVDA +191% ... TSLA +127% ... META +141%.”

We have already talked about Nvidia representing the epicenter of the AI picks and shovels phase of this gold rush. 

And although the strong market rally having AI tailwinds hasn’t hurt, it’s useful to catalog other drivers. Again, above market observers:

“How should we interpret the recent strong market rally, which was largely unanticipated by institutional investors? It’s a complex combination of drivers: AI technology optimism, underweight positioning in parts of the equity market, US growth resilience, declining (albeit still uncomfortably high) inflation, receding debt ceiling risks…and in an uncertain macroeconomic and geopolitical environment, the relative comfort of large tech companies that offer a degree of resilience and diversified profitability at scale.”

It’s important to keep in mind both these opposite forces at the same time: an existential set of fears around AI, and the global private and public market enthusiasm for opportunities around AI. 

I continue to be on the long term optimistic front in this dichotomy. As I outlined just a few days ago, the prospects around AI for both the second half of 2023, and indeed the next three years are quite encouraging. 

And am encouraged by current Yellen-led discussions between the US and China on its geopolitical trade and national security  issues. Since China and diminished globalization, remain the one issue in my mind, that could upend the Math behind this US Tech growth wave. 

So let’s be mindful of the tale of two possibilities, and plan accordingly. Stay tuned.