A cause for some concern is the calls from industry leaders to slow the pace of development and impose serious restrictions on AI, writes Reuters.
“Following recent grim statements about the potential threat that artificial intelligence may pose to humanity, over the weekend AI leaders, including Anthropic’s CEO Dario Amodei, called for a slowdown in its development and for more time to be set aside to manage the associated risks,” the publication notes.
It also points out that large-scale investments by tech giants in the construction of data centres for artificial intelligence have benefited a wide range of companies and their share prices, contributing to the S&P 500 index more than doubling since the start of the bull market in October 2022. In this context, Wall Street is wary of any signs that such investments – which are expected to reach nearly $800 billion by the end of 2026 – might slow down.
“It becomes a problem if orders, data centre construction projects and construction deals are actually being cancelled,” Reuters quotes Chuck Carlson, CEO of Horizon Investment Services in Hammond, Indiana, as saying. “I need concrete evidence that a slowdown is actually taking place, not just empty talk.”
Record investment in AI
According to Reuters, the broad market index has risen by more than 11 per cent since the start of this year, driven by growth in corporate profits fuelled by significant capital expenditure over the past few years.
Meanwhile, according to data from BofA Global Research, capital expenditure by the largest AI companies is expected to total around $795 billion this year, and nearly $1.08 trillion in 2027.
A significant portion of this spending is directed towards semiconductor companies, whose share prices and profits have risen sharply this year, but which were hit hardest by Monday’s sell-off, the publication emphasises.
“The markets punish those involved in developing and implementing new technologies more severely than large companies, because they are the ones most vulnerable to a slowdown in the pace of improving their capabilities,” said Eric Kratz, chief investment officer and co-head of asset management at Arena Private Wealth in Chicago.
However, according to Kratz, there may be a silver lining to the industry’s stricter safety controls.
“Construction does not grind to a halt simply because company executives have demanded restrictions be put in place. On the contrary, a robust safety system simplifies the financing of long-term capital investments.”
Investors remain sceptical
However, rising capital costs and the AI boom do not rule out doubts regarding interest rates on the stock market.
Investors are now weighing up a much broader range of risks, including the possibility of increased government regulation. “The real risk lies not in growth slowing down, but in an overreaction by the regulatory authorities,” Reuters quotes Eric Kratz as saying.
The publication notes that concerns about growth may not be enough to halt the investment boom, but there are a number of factors that could affect the pace of AI development. In this regard, investors are trying to understand whether there will be “more or less regulation, more or less geopolitical tension, or whether new paradigms will emerge in the technology sector”.
If doubts about the effectiveness of AI intensify, shares could prove vulnerable.
“Shares in companies specialising in semiconductor technologies and AI infrastructure have long been priced in, reflecting the continuous boom in capital investment, which virtually rules out the possibility of a setback due to the industry’s self-imposed speed limits,” – Reuters quotes James Humphries, managing partner at Mindset Wealth Management in Indianapolis. – “If the market is already grappling with inflation that is tougher than expected and an uncertain trajectory for the Fed’s interest rates, then the loss of the market’s main growth driver leaves broader indices completely vulnerable to these macroeconomic factors.”
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