Matt Levine on Short-term Bias and AI Investments

Is the stock market pressuring AI corporate managers to focus on the short term?

Matt Levine’s November 11th Money Stuff newsletter had some interesting thoughts about the disparity between the folks running AI companies and the researchers. As for the latter, Matt notes:

It is really an amazing time to be an AI researcher. You can come into work to pursue pure science, uncontaminated by any need for near-term practical applications or making money. And when your boss comes to you and says “hey guy not to be annoying but I am paying you $100 million, is there any way we could turn any of this stuff into money,” you can quit in a huff and find venture capitalists who will give you billions of dollars to be even less commercial.

As for the former, some are perfectly happy to finance basic research:

Betting on long-term theoretical AI research has turned out to be hugely lucrative for a lot of investors; there’s no reason not to keep doing it.

But then Matt points to an article from the Financial Times pointing out that Mark Zuckerberg—despite being having substantially more than majority voting power at Meta—is feeling stock market pressure to monetize AI projects in the short term:

From this telling of the story, it does sound like Meta and Zuckerberg are prioritizing short-term rollouts and monetization of current AI models over long-term fundamental research. “Zuckerberg has come under growing pressure from Wall Street to show that his multibillion-dollar investment in becoming an ‘AI leader’ will pay off and boost revenue,” reports the FT ….

… when you get big enough, you do have to care a bit about what the stock market wants. And when you are paying your AI researchers hundreds of millions of dollars in stock, it does help if the stock goes up.

All of which raises the perennial question of whether the market pressures public company CEOs. As Matt points out, some claim “that the public stock market is too focused on short-term results, that chief executive officers of public companies cannot pursue their long-term visions because of the daily pressure from investors to report good quarterly earnings, and that only startups backed by patient long-term venture capitalists can pursue really ambitious projects.”

Some years ago I was given the privilege of writing a comment for the Columbia Business Law Review in response to an article by Eric Talley and Michal Barzuza in which they put a unique spin on that old debate.

Let’s revisit their argument and my response.