Last week was a spooky one for investors exposed to AI stocks as the risks of the massive infrastructure expansion are overshadowing the hype. In this environment, investors need to understand what’s inside their portfolios—specifically, how much exposure they have to AI across asset classes, including stocks, bonds, and private investments.
With midterm elections looming and a range of economic and geopolitical concerns facing markets, reducing portfolio risk and positioning assets in traditionally non-correlated asset classes makes sense.
Below are some highlights from last week’s headlines:
Stocks tumbled again on Friday, on concerns connected to the AI buildout, potential regulation and disappointing quarterly results from Intel and Amazon. Intel shares plunged 28.6% while the Nasdaq slid 2.9% and has dropped 7.8% from its all-time high, posting its worst month in over a year. Shares of Nvidia fell 4.2% on Friday, AMD slid 10.9%, Dell slid 10.8%, and HP fell 9.6%.
Alphabet (Google) suffered its worst day ever on Thursday when its stock plunged 13%, wiping out roughly $500 billion in market value. Google’s sales numbers slightly missed expectations, and its core search advertising growth slowed to 12%. Investors are concerned AI chatbots are replacing Google search while a $50 billion in spending on AI infrastructure resulted in a negative free cash flow of $9 billion.
Anthropic publicly filed its Form S-1 registration statement with the SEC on Monday and is expected to offer its shares to the public next month. The 95 pages are dedicated to explaining the risks to shareholders. On page 46, Anthropic explained that its company poses “existential risks” to non-shareholders as well: “Concerns have been raised both within our organization and by other researchers, regulators, policymakers, and industry participants that sufficiently advanced AI systems could, if not developed, deployed, and operated with appropriate safeguards, oversight, and security measures, pose catastrophic or existential risks to humanity, particularly if such systems were misused, replicated, weaponized, or allowed to operate with a high degree of autonomy.”
The filing explained that AI could:
Provide meaningful assistance to bad actors looking to develop dangerous biological, chemical, or other weapons;
Eventually take over its own development, automating research and improving itself faster than human engineers can evaluate or control it;
Cause large-scale harm or corrupt institutional decision-making through independent actions that are completely invisible and not understandable to human operators;
Exhibit self-preserving behaviors, such as trying to resist being shut down, concealing or manipulating information, and engaging in actions that resemble blackmail;
Concentrate wealth and power among countries, which could lead to a breakdown of societal trust and destabilize the global geopolitical order;
Displace or eliminate jobs.
Microsoft announced a "voluntary exit" buyout offer to 60,000 employees, which is about a quarter of its global workforce. The buyout is widely viewed as a cost-containment measure to offset massive AI infrastructure spending—the clearest signal so far that AI is taking people’s jobs.
The Brazilian stock market crashed, after socialist President Luiz Inácio Lula da Silva was reelected on Monday. Accusations of election fraud are supported by a some evidence. The Brazilian Real dropped to around 5.60 per US dollar, Brazil's Treasury was forced to cancel two scheduled bond auctions, and the iShares MSCI Brazil ETF (EWZ) finished down 23.7% for the week.
In the largest crypto heist in history, hackers siphoned around $6.3 billion in cryptocurrencies from wallets belonging to crypto exchange Binance. Investigators say notorious North Korean hackers may be behind the hack. The breach drove Bitcoin down toward $77,000 and triggered sharp losses for crypto-exposed stocks like Coinbase.
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Some interesting things I came across this week…
SpaceX, OpenAI, and Anthropic's combined $5.2 trillion valuation exceeds the first-day market cap of every U.S. tech IPO since 1980 (Yahoo!)
Schwab Chief Investment Strategist, Liz Ann Sonders, said “there is a bit of an engine fire” in the current market environment that “is not smoking outside of the hood yet.” (Financial Advisor)
The credibility of Fed Chair Kevin Warsh is eroding (Chris Whalen)
Unauthorized AI agents are accessing U.S. bank accounts (Axios)
Opinion: The S&P 500 isn’t the big winner you may think it is (MarketWatch)
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Off the beaten path...
Infographic: Government Debt Across the European Union (Visual Capitalist)
New study: one in four European pilots routinely fly while dangerously exhausted (ECA)
The bizarre double life of two schoolteachers who hid a stolen $160 million masterpiece behind their bedroom door (The Thief Collector)
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