The Stock Market and AI

How markets price the dark side of AI

Two WSJ articles caught my eye today. First, AI-Induced Tech Selloff Spoils the IPO Parade:

… fears that AI will upend the software industry sent stocks tumbling earlier this month. The selloff accelerated Monday after a viral blog post about the threat posed by AI.

Bankers and investors now expect the few mega-offerings to dominate the year. Most private tech companies—many that have spent years biding their time—will be forced to keep waiting it out.

The other was an article about that negative AI report that went viral, Viral Doomsday Report Lays Bare Wall Street’s Deep Anxiety About AI Future:

A viral report by Citrini Research tapped into a new strain of fears about AI, painting a dark portrait of a future in which technological change inspires a race to the bottom in white-collar knowledge work. Concerns of hyperscalers overspending are out. Worries of software-industry disruption don’t go far enough. The “global intelligence crisis” is about to hit.

The new, broader question: What if AI is so bullish for the economy that it is actually bearish? …

Many of Monday’s moves roughly aligned with the situation outlined by Citrini, in which fast-advancing AI tools allow spending cuts across industries, sparking mass white-collar unemployment and in turn leading to financial contagion. …

Fears of AI disruption have rolled across software, private credit, insurance and wealth-management firms in recent weeks.

Over on my personal journal, StephenBainbridge.com, I have a recent post making a Pareto efficiency argument for taxing AI companies to pay for the disruption they’re causing. It’s free, although donations are gladly accepted.

All of which called to mind a very interesting paper I recently read, The Social Risks of Generative AI by Marco Ceccarelli and Rex Wang Renjie. Their paper reveals something most AI hype misses entirely; namely that investors are already pricing in the downside risks of artificial intelligence and, moreover, that they’re doing it in a surprisingly sophisticated way.